SOUTHERN
UNION ANNOUNCES 4Q AND FISCAL 2008 RESULTS;
ISSUES 2009 GUIDANCE
• Fiscal 2008 EPS of $2.26;
Adjusted EPS of $1.81
• Fourth quarter 2008 EPS of $.97; Adjusted EPS of $.47
• 2009 EPS of $1.45 to $1.60; Adjusted EPS of $1.75 to $1.90
HOUSTON, February
26, 2009 – Southern Union Company (NYSE: SUG) today reported net earnings
available for common stockholders for the year ended December 31, 2008 of $279.4
million ($2.26 per share) compared with $211.3 million ($1.75 per share) in the
prior year. Adjusted net earnings available for common stockholders for the
year were $223.4 million ($1.81 per share) compared with adjusted net earnings
of $205.6 million ($1.70 per share) in the prior year. Adjusted net earnings
for 2008 exclude a non-cash after-tax mark-to-market unrealized gain on open
economic hedges of 2009 processing spreads, an after-tax charge related to the
company’s repurchase of its preferred stock during the year and a change in tax
benefit associated with the dividends received deduction for anticipated
dividends from the company's Citrus investment. Adjusted net earnings for 2007
exclude an after-tax gain of $10.5 million related to the settlement of
litigation. A reconciliation of net earnings to adjusted net earnings for the
year is set forth in the following table.
The company estimates that Hurricanes Gustav and Ike negatively impacted the year by approximately $17.5 million ($.14 per share) on an after-tax basis. The negative impact during the year was primarily a result of reduced availability in the gathering and processing segment of third-party fractionation facilities damaged by Hurricane Ike, expenses related to damages to the company’s offshore facilities and reduced transportation revenue as a result of reduced volumes flowing after Hurricane Ike.
For the three-month period ended December 31, 2008, the company reported net earnings available for common stockholders of $120.9 million ($.97 per share) compared with $49.4 million ($.41 per share) for the prior year. Adjusted net earnings available for common stockholders for the current quarter were $59.3 million ($.47 per share). Adjusted net earnings exclude a non-cash after-tax mark-to-market unrealized gain on open economic hedges of 2009 processing spreads, an after-tax gain related to the company’s repurchase of its preferred stock and a change in tax benefit associated with the dividends received deduction for anticipated dividends from the company's Citrus investment. A reconciliation of net earnings to adjusted net earnings for the three-month period is set forth in the following table.
The company estimates that Hurricanes Gustav and Ike negatively impacted the fourth quarter by approximately $4.2 million ($.03 per share) on an after-tax basis.
By calculating adjusted net earnings available for common stockholders, the company believes it presents its earnings in a manner more consistent with the presentation used by the investment community in its evaluation of the company's earnings.
For the year ended December 31, 2008, net operating revenue, calculated as revenue less cost of gas and other energy and revenue related taxes, increased $156.8 million or 14.3% to $1,251.2 million from $1,094.4 million in the prior year. Adjusted net operating revenue, which excludes the unrealized gain on open economic hedges, was $1,191.5 million during the year. For the three months ended December 31, 2008, net operating revenue was $369.0 million compared with $296.1 million in the prior year. Adjusted net operating revenue for the current quarter was $306.7 million. A reconciliation of operating revenue to net operating revenue and adjusted net operating revenue for the year and quarter are available at the end of this press release.
The company uses earnings before interest and taxes (“EBIT”) as its primary measure of evaluating financial performance. EBIT is a non-GAAP measure and should be used in conjunction with net earnings and other performance measures such as operating income or net cash flows provided by operating activities. For the year ended December 31, 2008, Southern Union reported adjusted EBIT of $547.6 million compared with adjusted EBIT of $518.9 million in the prior period, representing an increase of 5.5%. The increase was primarily due to improvements at the company’s transportation and storage and gathering and processing segments. For the three months ended December 31, 2008, Southern Union reported adjusted EBIT of $142.6 million compared with EBIT of $129.4 million in the prior period, representing an increase of 10%. The quarterly increase was primarily due to improvements at the company’s distribution and corporate and other segments. A reconciliation of EBIT to adjusted EBIT and EBIT to net earnings for the year and quarter are available at the end of this press release.
By calculating adjusted EBIT, the company believes it presents its financial performance in a manner more consistent with the presentation used by the investment community in its evaluation of the company's financial performance.
Management’s Perspective
Commenting on the year, George L. Lindemann, chairman and CEO, said, “In light
of two significant hurricanes and a major degradation of the economy, commodity
and credit markets in the fourth quarter, we are very pleased to have reported
solid adjusted earnings of $1.81 per share for 2008. We are equally pleased to
announce 2009 adjusted earnings guidance in the range of $1.75 to $1.90 per
share.”
President and COO Eric D. Herschmann added, “The strong cash flows and earnings reported by the company in 2008 in the midst of the recent economic downturn reflect the stability of our low-risk business profile and regulated business segments. The completion of our Trunkline LNG Infrastructure Enhancement Project this year will further add to our stable cash flow and earnings base in 2009 and beyond.”
Key Factors Impacting 2008 Performance Relative to Prior Year
Southern Union’s transportation and storage segment posted EBIT of $404.8 million, compared with adjusted EBIT of $392.4 million in the prior year. The $12.4 million increase was primarily attributable to a $21.4 million increase in EBIT at Panhandle Energy, which includes Panhandle Eastern Pipeline Company and its subsidiaries, partially offset by an $8.9 million decrease in equity earnings from its 50% investment in Citrus Corp. Panhandle Energy saw higher operating revenues of $63.2 million, partially offset by higher operating expenses of $21.6 million and higher depreciation and amortization expense of $18.2 million. The increase in operating revenues was largely due to a $49.1 million increase in reservation revenue, primarily a result of the Trunkline Field Zone Expansion project which was fully placed in service by February 2008, higher parking revenue of $8.2 million and higher storage revenue of $6.7 million. The operating expense increase includes $13.5 million related to damages to the company’s facilities as a result of the hurricanes and higher contract storage costs of approximately $10.2 million. At Citrus Corp., reflective of the company’s 50% interest, operating revenue increased $4.7 million, offset by a $6 million increase in operating expenses, a $2.6 million increase in depreciation and a $4.5 million increase in interest expense.
The gathering and processing segment reported adjusted EBIT of $85.7 million compared with $65.4 million in the prior year. Adjusted EBIT for the year excludes a $59.7 million mark-to-market unrealized gain on open economic hedges of 2009 processing spreads. Gross margin increased by $33.6 million, excluding the impact of mark-to-market accounting on open commodity derivatives, primarily due to improved higher realized natural gas and natural gas liquids prices. The company estimates that gross margin was negatively impacted by $10.6 million during the year, primarily a result of reduced availability of third-party fractionation facilities damaged by Hurricane Ike. Operating expenses increased by $6.1 million, primarily due to a $3.0 million bad debt reserve for receivables associated with a company that filed for bankruptcy, a $2.3 million increase in chemical and lubricant costs and a $2.1 million increase in utility costs. Equity earnings from the company’s investment in Grey Ranch decreased by $2.3 million due to a 2008 fire that removed the plant from service for approximately five months. The plant returned to service in late October 2008. Depreciation expense increased by $3.2 million during the year due to an increase in property, plant and equipment.
EBIT for the company’s distribution segment (predominantly Missouri Gas Energy) decreased $.8 million to $61.4 million for the year.
2009 Earnings Guidance
Southern Union expects 2009 net earnings to be in the range of $1.45 to $1.60
per share. Adjusted net earnings are expected to be in the range of $1.75 to
$1.90 per share. Adjusted net earnings attribute the impact of previously
accrued mark-to-market unrealized gains on economic hedges of 2009 processing
spreads to 2009 adjusted net earnings. The company’s 2009 Financial Outlook is
available on its website at
www.sug.com.
Annual Report on Form 10-K
Southern Union will provide additional information about its fiscal 2008 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 9:00 a.m.
Eastern time to discuss results, recent events and outlook. To access the call,
dial 888-713-4216 (international callers dial 617-213-4868) and enter the
passcode 36278079. 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 69185508. The webcast may be accessed online through the
Investor’s section of the company’s web site at
www.sug.com.
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 PUNPENU3T or enter the following URL www.theconferencingservice.com/prereg/key.process and use the same registration key.
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, along with serving 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 audited financial information for the company for
the years ended December 31, 2008 and 2007. 
Select Financial Information
The following table sets forth unaudited financial information for the company for the three months ended December 31, 2008 and 2007.
Select Financial Information
Continued
The following table sets forth certain select, audited financial information for
the company as of and for the years ended December 31, 2008 and 2007.
Select Financial
Information Non-GAAP
The following table sets forth certain select audited financial information for the company’s segments and a reconciliation of EBIT to net earnings for the years ended December 31, 2008 and 2007.
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 available for common shareholders, adjusted for: (i) items that do not impact earnings, such as extraordinary items, discontinued operations and the impact of changes in accounting principles; (ii) income taxes; (iii) interest; (iv) dividends on preferred stock; and (v) loss on extinguishment of preferred stock.
Select Financial Information Non-GAAP
The following table sets forth certain select audited financial information for the company’s segments and a reconciliation of EBIT to net earnings for the three months ended December 31, 2008 and 2007.
Select Financial Information Non-GAAP
The following tables set forth a reconciliation of EBIT to adjusted EBIT (a non-GAAP measure) for the company and select business segments for the years and three months ended December 31, 2008 and 2007.
Select Financial Information Non-GAAP
The following tables set forth a reconciliation of operating revenues to net operating revenues and adjusted net operating revenues for the company for the year and three months ended December 31, 2008 and 2007.
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For further information:
John P. Barnett, Director of External Affairs
713-989-7556
John F. Walsh, Vice President of Investor Relations
212-659-3208