Southern Union Earnings From Continuing Operations Up 26% After Adjustments

Southern Union Company (NYSE:SUG) today reported net earnings from continuing operations for the year ended December 31, 2007, of $228.7 million ($1.75 per fully diluted share) compared with $217.1 million ($1.70 per share) in the prior year. Excluding select one-time and non-recurring items, net earnings available for common stockholders from continuing operations would have been $205.6 million ($1.70 per share) for the current period compared with $163.8 million ($1.40 per share) in the prior period, an increase of 26%.   Year ended December 31, 2007   2007   2006   2006 ($000s, except per share amounts)   As reported   Adjusted   As reported   Adjusted Operating revenue $ 2,616,665 $ 2,616,665 $ 2,340,144 $ 2,340,144 After-tax adjustment for selected items $ - $ (5,712 ) $ - $ (35,904 ) Earnings from continuing operations $ 228,711 $ 222,999 $ 217,083 $ 181,179 Preferred stock dividends $ (17,365 ) $ (17,365 ) $ (17,365 ) $ (17,365 ) Net earnings available for common stockholders from continuing operations $ 211,346 $ 205,634 $ 199,718 $ 163,814 Net earnings available for common stockholders from continuing operations per share   $ 1.75     $ 1.70     $ 1.70     $ 1.40   Selected items in 2007 consist of a $7.5 million gain resulting from the settlement of litigation at Citrus Trading, a $7.6 million gain resulting from the settlement of the related recorded liability, a $6.9 million write-down in the carrying value of the company’s Scranton office and a $2.5 million decrease in income tax expense associated with the selected items. Selected items in 2006 included a $74.8 million book gain resulting from the company’s exchange of its ownership interest in Transwestern Pipeline Company for increased ownership in Citrus Corp., offset by $14.2 million of non-recurring transaction related bonuses paid to executive management, $6.5 million related to the write-down in carrying value of the company’s Scranton office and an $18.2 million increase in income taxes associated with the tax impact of the selected items. Earnings from discontinued operations in 2006 relate to the sales of the company’s Pennsylvania and Rhode Island natural gas distribution assets, which closed on August 24, 2006. Net operating revenue, calculated as revenue less cost of gas and other energy and revenue related taxes, increased $167 million or 18%, to $1.1 billion from $928 million in the prior year. For the year ended December 31, 2007, Southern Union reported adjusted earnings before interest and taxes from continuing operations ("EBIT”), excluding the aforementioned selected items, of $518.9 million for the current period compared with $482.3 million in the prior period, representing an increase of 7.6%. The increase in operating results was primarily attributable to growth in Southern Union’s transportation and storage segment and increased contributions from the distribution segment as a result of successful rate increase requests. The transportation and storage segment recorded adjusted EBIT of $375.9 million compared with $342.7 million in 2006, representing an increase of 9.7%. The company’s gathering and processing segment, Southern Union Gas Services, recorded EBIT of $65.4 million for 2007 compared with $62.6 million for the ten months ended December 31, 2006. The EBIT contribution from the distribution segment increased 68.5% to $70.6 million, up from $41.9 million in 2006. Key Factors Impacting 2007 Performance Relative to Prior Year Southern Union’s transportation and storage segment posted adjusted EBIT of $375.9 million, compared with $342.7 million in the prior year. The $33.2 million increase was attributable to a $15.6 million increase at Panhandle Energy, primarily a result of higher transportation, storage and LNG terminalling revenue, offset partially by higher operating expenses, and a $17.6 million increase in equity earnings primarily due to the company’s increased ownership in Citrus Corp., parent company of Florida Gas Transmission. The gathering and processing segment reported EBIT of $65.4 million compared with $62.6 million for the ten months ended December 31, 2006. Gross margin for the period improved by $38.6 million primarily due to higher realized natural gas and natural gas liquids prices and the realization of operating results for a full twelve-month period in 2007 versus only ten months in 2006, offset by an increase in operating expenses of $23.1 million and depreciation of $12.2 million due to generally higher operating expenses industry-wide and the effect of the full twelve-month period in 2007 versus only ten months in 2006. EBIT for the company’s ongoing distribution segment (predominantly Missouri Gas Energy) increased $28.7 million to $70.6 million. The increase was due primarily to an increase in net operating revenues of $47.5 million, largely a result of Missouri Gas Energy’s successful rate case resulting in a $27.2 million increase in annual base revenues, including a change in the company’s residential customer class rate structure to a straight-fixed variable rate design. The straight fixed-variable rate design mitigates the impact of weather and conservation on earnings and cash flows and normalizes margin throughout the year. Consumption volumes and heating degree days also increased during the period by 13.8% and 14%, respectively. Operating expenses increased by $18.6 million for the period, largely due to a $7.1 million increase in pension expense associated with the rate case, an increase of $5.5 million in labor expense and an increase of $4.5 million in general expense. Interest expense decreased $6.9 million to $203.1 million for the year. The decrease was primarily due to the inclusion of $49.2 million of interest expense and $7.8 million of debt amortization cost in the prior year related to the company’s $1.6 billion bridge loan facility used to finance the Sid Richardson Energy Services acquisition in March 2006. The company repaid the bridge loan using proceeds from its local distribution company asset sales in August 2006 and the issuance of $600 million of its 7.2% fixed/floating rate junior subordinated notes in October 2006. Increases to interest expense for the period included $34.9 million related to the aforementioned junior subordinated notes and $20.6 million related to higher debt balances at Panhandle Energy. Corporate and Other reported EBIT of $.2 million compared with $14.3 million in the prior year. The decrease was due primarily to a $37.2 million mark-to-market gain on put options for the pre-acquisition period associated with the March 1, 2006 acquisition of Sid Richardson Energy Services and the negative impact of $12.8 million of non-recurring transaction related bonuses paid to executive management in 2006. 2008 Earnings Guidance Southern Union expects 2008 net earnings to be in the range of $1.80 to $1.90 per fully diluted share. Annual Report on Form 10-K Southern Union will provide additional information about its 2007 results in its annual report on Form 10-K expected to be filed today with the Securities and Exchange Commission. Once made, this filing may be accessed through the Investors section of the company’s web site at www.sug.com. Investor Call & Webcast Southern Union will host a live investor call and webcast today at 2:00 p.m. Eastern time to discuss annual results, recent events and outlook. To access the call, dial 888-679-8035 (international callers dial 617-213-4848) and enter the passcode 98434355. A replay of the call will be available for one week after the event by dialing 888-286-8010 (international callers dial 617-801-6888) and entering passcode 66746396. Please use the following link to pre-register and view important information about this conference call. Pre-registering is not mandatory but is recommended as it will provide you immediate entry into the call and will facilitate the timely start of the call. Pre-registration takes only a few minutes and you may pre-register at any time, including up to and after the call start time. To pre-register, please click Pre-register (control + click on the link) and enter the registration key PDLLTUHAG or enter the following URL www.theconferencingservice.com/prereg/key.process and use the same registration key. The investor call is being webcast by CCBN and may be accessed through Southern Union’s web site at www.sug.com, through Thomson/CCBN’s individual investor center at www.companyboardroom.com, or by visiting any of the investor sites in Thomson/CCBN’s individual investor network. Institutional investors may access the call via Thomson/CCBN’s password-protected event management site – StreetEvents at www.streetevents.com. About Southern Union Company Southern Union Company, headquartered in Houston, is one of the nation’s leading diversified natural gas companies, engaged primarily in the transportation, storage, gathering, processing and distribution of natural gas. The company owns and operates one of the nation’s largest natural gas pipeline systems with approximately 20,000 miles of gathering and transportation pipelines and North America’s largest liquefied natural gas import terminal. Through Panhandle Energy, Southern Union’s interstate pipeline interests operate approximately 15,000 miles of interstate pipelines that transport natural gas from the Anadarko and San Juan basins, the Rockies, the Gulf of Mexico, Mobile Bay and South Texas to major markets in the Southeast, Midwest and Great Lakes region. Southern Union Gas Services, with approximately 4,800 miles of pipelines, is engaged in the gathering, transmission, treating, processing and redelivery of natural gas and natural gas liquids in Texas and New Mexico. Through its local distribution companies, Missouri Gas Energy and New England Gas Company, Southern Union also serves more than half a million natural gas end-user customers in Missouri and Massachusetts. For further information, visit www.sug.com. Forward-Looking Information This news release includes forward-looking statements. Although Southern Union believes that its expectations are based on reasonable assumptions, it can give no assurance that such assumptions will materialize. Important factors that could cause actual results to differ materially from those in the forward-looking statements herein are enumerated in Southern Union’s Forms 10-K and 10-Q as filed with the Securities and Exchange Commission. The Company assumes no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by the Company, whether as a result of new information, future events, or otherwise. Select Financial Information The following table sets forth certain select financial information for the Company for the years ended December 31, 2007, 2006 and 2005.       Year Ended December 31,   2007       2006       2005   (In thousands, except per share amounts)   Operating revenues $ 2,616,665 $ 2,340,144 $ 1,266,882   Operating expenses: Cost of gas and other energy 1,483,715 1,377,147 529,450 Revenue-related taxes 38,584 35,281 40,080 Operating, maintenance and general 444,408 381,844 302,025 Depreciation and amortization 177,999 152,103 92,562 Taxes, other than on income and revenues   44,874     38,684     33,648   Total operating expenses   2,189,580     1,985,059     997,765     Operating income 427,085 355,085 269,117   Other income (expenses): Interest expense (203,146 ) (210,043 ) (128,470 ) Earnings from unconsolidated investments 100,914 141,370 70,742 Other, net   (883 )   39,918     (8,241 ) Total other expenses, net   (103,115 )   (28,755 )   (65,969 )   Earnings from continuing operations before income taxes 323,970 326,330 203,148   Federal and state income taxes   95,259     109,247     50,052     Earnings from continuing operations 228,711 217,083 153,096   Discontinued operations: Loss from discontinued operations before income taxes - (2,369 ) (111,588 ) Federal and state income taxes   -     150,583     20,825   Loss from discontinued operations - (152,952 ) (132,413 )   Net earnings 228,711 64,131 20,683   Preferred stock dividends   (17,365 )   (17,365 )   (17,365 )   Net earnings available for common stockholders $ 211,346   $ 46,766   $ 3,318     Net earnings available for common stockholders from continuing operations per share: Basic $ 1.76 $ 1.74 $ 1.24 Diluted $ 1.75 $ 1.70 $ 1.20   Net earnings available for common stockholders per share: Basic $ 1.76 $ 0.41 $ 0.03 Diluted $ 1.75 $ 0.40 $ 0.03 Cash dividends declared on common stock per share: $ 0.45 $ 0.40 N/A   Weighted average shares outstanding: Basic 119,930 114,787 109,395 Diluted 120,674 117,344 112,794 Select Financial Information Continued The following table sets forth certain select financial information for the Company’s segments and a reconciliation of EBIT to net earnings for the years ended December 31, 2007, 2006 and 2005.       Year Ended December 31, Segment Data   2007       2006       2005   (In thousands)   Operating revenues from external customers: Transportation and Storage $ 658,446 $ 577,182 $ 505,233 Gathering and Processing 1,221,747 1,090,216 - Distribution   732,109     668,721     752,699   Total segment operating revenues 2,612,302 2,336,119 1,257,932 Corporate and other   4,363     4,025     8,950   $ 2,616,665   $ 2,340,144   $ 1,266,882     Depreciation and amortization: Transportation and Storage $ 85,641 $ 72,724 $ 62,171 Gathering and Processing 59,560 47,321 - Distribution   30,251     30,353     29,447   Total segment depreciation and amortization 175,452 150,398 91,618 Corporate and other   2,547     1,705     944   $ 177,999   $ 152,103   $ 92,562     Earnings (loss) from unconsolidated investments: Transportation and Storage $ 99,222 $ 141,310 $ 70,618 Gathering and Processing 1,300 (188 ) - Corporate and other   392     248     124   $ 100,914   $ 141,370   $ 70,742     Other income (expense), net: Transportation and Storage $ 1,604 $ 3,354 $ 571 Gathering and Processing 140 1,571 - Distribution   (1,902 )   (2,130 )   (2,598 ) Total segment other income (expense), net (158 ) 2,795 (2,027 ) Corporate and other   (725 )   37,123     (6,214 ) $ (883 ) $ 39,918   $ (8,241 )   Segment performance: Transportation and Storage EBIT $ 391,029 $ 417,536 $ 281,344 Gathering and Processing EBIT 65,368 62,630 - Distribution EBIT   70,568     41,883     61,698   Total segment EBIT 526,965 522,049 343,042 Corporate and other 151 14,324 (11,424 ) Interest expense 203,146 210,043 128,470 Federal and state income taxes   95,259     109,247     50,052   Earnings from continuing operations 228,711 217,083 153,096 Loss from discontinued operations before income taxes - (2,369 ) (111,588 ) Federal and state income taxes   -     150,583     20,825   Loss from discontinued operations   -     (152,952 )   (132,413 ) Net earnings 228,711 64,131 20,683 Preferred stock dividends   17,365     17,365     17,365   Net earnings available for common stockholders $ 211,346   $ 46,766   $ 3,318   The Company evaluates segment performance based on several factors, of which the primary financial measure is earnings before interest and taxes (EBIT). EBIT allows management and investors to more effectively evaluate the performance of all of the Company’s consolidated subsidiaries and unconsolidated investments. The Company defines EBIT as net earnings (loss) available for common shareholders, adjusted for: (i) items that do not impact earnings (loss) from continuing operations, such as extraordinary items, discontinued operations and the impact of accounting changes; (ii) income taxes; (iii) interest; and (iv) dividends on preferred stock. EBIT is a non-GAAP financial measure and may not be comparable to measures used by other companies. Additionally, EBIT should be considered in conjunction with net earnings and other performance measures such as operating income or operating cash flow. Select Financial Information Continued The following table sets forth certain select financial information for the Company as of and for the years ended December 31, 2007 and 2006.     December 31,   2007         2006   (In thousands of dollars) Total assets $ 7,397,913 $ 6,782,790 Long Term Debt 2,960,326 2,689,656 Short term debt and notes payable 557,680 561,011 Preferred stock 230,000 230,000 Common equity 1,975,806 1,820,408 Total capitalization 5,723,812 5,301,075       Year ended December 31,   2007     2006   Cash flow information: (In thousands of dollars) Cash flow provided by operating activities $ 470,408 $ 458,805 Changes in working capital (46,232 ) 65,226 Net cash flow provided by operating activities before changes in working capital 516,640 393,579 Net cash flow used in investing activities (666,604 ) (806,804 ) Net cash flow provided by financing activities 196,135 336,812 Select Financial Information Continued The following table sets forth a reconciliation of EBIT to Adjusted EBIT for the company for the years ended December 31, 2007 and 2006.     Year ended December 31,   2007       2006   (In thousands of dollars) Southern Union Company: Reported EBIT $ 527,116 $ 536,373 Adjustments: Citrus litigation settlement (7,500 ) - Recorded liability settlement (7,600 ) - Transwestern Pipeline ownership exchange gain - (74,800 ) Write-down in carrying value of Scranton facility 6,900 6,500 Non-recurring transaction related bonuses   -     14,200   Adjusted EBIT $ 518,916   $ 482,273       Transportation & storage segment: Reported EBIT $ 391,029 $ 417,536 Adjustments: Citrus litigation settlement (7,500 ) - Recorded liability settlement (7,600 ) - Transwestern Pipeline ownership exchange gain   -     (74,800 ) Adjusted EBIT $ 375,929   $ 342,736