Southern Union Adjusted EPS up 10%; Reaffirms 2008 EPS Guidance

Southern Union Company (NYSE:SUG) today reported adjusted net earnings available for common stockholders for the quarter ended June 30, 2008, of $53.3 million ($.43 per share) compared with $46.6 million ($.39 per share) in the prior year. Adjusted net earnings exclude a $13.8 million ($.11 per share) non-cash after-tax mark-to-market unrealized loss on open commodity derivatives and a $2.0 million ($.02 per share) after-tax charge related to the company’s repurchase of $48.6 million of its preferred stock during the quarter. Reported net earnings for the quarter on a GAAP basis were $37.5 million ($.30 per fully diluted share).   Three months ended June 30, ($000s, except per share amounts)   2008   2007 Operating revenues $ 733,055   $ 588,049 Operating income $ 90,277 $ 87,400 Net earnings $ 42,910 $ 50,975 Preferred stock dividends $ (3,436 ) $ (4,341 ) Loss on extinguishment of preferred stock $ (1,995 ) $ - Net earnings available to common stockholders $ 37,479 $ 46,634 After-tax adjustment for selected items $ 15,791 $ - Adjusted net earnings available to common stockholders $ 53,270 $ 46,634 Net earnings per share available to common stockholders $ 0.30 $ 0.39 Adjusted net earnings per share available to common stockholders   $ 0.43     $ 0.39   For the six month period ended June 30, 2008, the company reported adjusted net earnings available for common stockholders of $131.8 million ($1.07 per share) compared with $110.8 million ($.92 per share) for the prior year. In the 2008 period, adjusted net earnings exclude a $13.8 million ($.11 per share) non-cash after-tax mark-to-market unrealized loss on open commodity derivatives and a $2.0 million ($.02 per share) after-tax charge related to the company’s repurchase of $48.6 million of its preferred stock during the quarter. In the 2007 period, adjusted net earnings exclude a $10.2 million ($.08 per share) after-tax nonrecurring gain related to the settlement of litigation. Reported net earnings for the six month period on a GAAP basis were $116.0 million ($.94 per share) compared with $121.0 million ($1.00 per share) in the prior year.   Six months ended June 30, ($000s, except per share amounts)   2008   2007 Operating revenues $ 1,685,753   $ 1,368,281 Operating income $ 243,832 $ 216,994 Net earnings $ 125,818 $ 129,696 Preferred stock dividends $ (7,777 ) $ (8,682 ) Loss on extinguishment of preferred stock $ (1,995 ) $ - Net earnings available to common stockholders $ 116,046 $ 121,014 After-tax adjustment for selected items $ 15,791 $ (10,223 ) Adjusted net earnings available to common stockholders $ 131,837 $ 110,791 Net earnings per share available to common stockholders $ 0.94 $ 1.00 Adjusted net earnings per share available to common stockholders   $ 1.07     $ 0.92   By excluding the aforementioned items from earnings, the company believes it presents its earnings in a manner more consistent with the presentation used by the investment community in their evaluation of the company's earnings. For the current quarter, adjusted net operating revenue, calculated as revenue less cost of gas and other energy, revenue related taxes and unrealized losses on open commodity derivatives, increased $32.6 million or 13%, to $290.3 million from $257.7 million in the prior year. For the quarter ended June 30, 2008, Southern Union reported adjusted earnings before interest and taxes ("EBIT”) of $134.4 million compared with EBIT of $117.1 million in the prior period, representing an increase of 15%. The increase in adjusted operating results was primarily attributable to increased contributions from Southern Union’s gathering and processing segment, which recorded adjusted EBIT of $34.4 million for the quarter compared with $12.6 million for the same period in the prior year, an increase of 173%. Management’s Perspective Commenting on the second quarter, George L. Lindemann, chairman and CEO, said, "We are very pleased with our strong results for the second quarter. We are on track to deliver the solid earnings and cash flows that we outlined in our 2008 strategic plan. With our Trunkline LNG Infrastructure Enhancement project progressing towards its second quarter 2009 in-service date, we expect to see strong growth in earnings and cash flows again next year.” President and COO Eric D. Herschmann added, "Our gathering and processing segment produced outstanding results for the quarter. Our system continues to operate efficiently and we have seen favorable growth in our equity volumes. We believe that the investments we have made in this segment are contributing significantly to our strong results and will benefit us long into the future.” Key Factors Impacting Second Quarter 2008 Performance Relative to Prior Year Southern Union’s transportation and storage segment posted EBIT of $94.3 million, compared with EBIT of $95.5 million in the prior year. The $1.2 million decrease was primarily attributable to a $4.6 million decrease in equity earnings from unconsolidated affiliates related to nonrecurring gains at Citrus Corp. in the prior year. EBIT at Panhandle Energy increased by $3.4 million, primarily a result of $6.6 million in higher operating revenues and $1.7 million of lower operating expenses, offset partially by $4.6 million of higher depreciation expense. The gathering and processing segment reported adjusted EBIT of $34.4 million compared with $12.6 million in the prior year. Adjusted EBIT for the quarter excludes a $22.3 million mark-to-market unrealized loss on open commodity derivatives. Gross margin increased by $25.5 million, excluding the mark-to market unrealized loss, primarily due to improved operating efficiencies resulting in increased equity volumes and higher realized natural gas and natural gas liquids prices. EBIT for the company’s distribution segment (predominantly Missouri Gas Energy) decreased $3.6 million to $2.8 million. The decrease was due primarily to a $3.4 million increase in operating expenses during the current quarter including $500,000 related to pension and benefits, $600,000 related to environmental remediation and $500,000 related to uncollectible accounts, coupled with a $700,000 nonrecurring expense reduction related to insurance reimbursements in the prior year. 2008 Earnings Guidance Southern Union reaffirms its 2008 adjusted net earnings guidance in the range of $1.80 to $1.90 per fully diluted share, which excludes the impact of mark-to-market accounting for open commodity derivatives and charges related to the extinguishment of preferred stock. Quarterly Report on Form 10-Q Southern Union will provide additional information about its second quarter 2008 results in its quarterly report on Form 10-Q 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 11:00 a.m. Eastern time to discuss results, recent events and outlook. To access the call, dial 888-680-0890 (international callers dial 617-213-4857) and enter the passcode 56263881. 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 22885459. 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 PKVLM8AUM 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 unaudited financial information for the company for the three and six months ended June 30, 2008 and 2007.   Three months endedJune 30,   Six months endedJune 30, 2008   2007 2008   2007 (In thousands, except per share amounts)   Operating revenues $ 733,055 $ 588,049 $ 1,685,753 $ 1,368,281   Operating expenses: Cost of gas and other energy 459,032 324,626 1,069,201 807,711 Operating, maintenance and general 116,279 115,309 225,189 210,504 Depreciation and amortization 49,321 43,666 97,944 87,130 Revenue-related taxes 5,974 5,675 24,924 22,694 Taxes, other than on income and revenues   12,172     11,373     24,663     23,248   Total operating expenses   642,778     500,649     1,441,921     1,151,287   Operating income 90,277 87,400 243,832 216,994   Other income (expenses): Interest expense (50,603 ) (51,146 ) (101,304 ) (103,331 ) Earnings from unconsolidated investments 21,098 26,270 37,827 57,166 Other, net   720     3,474     1,058     3,761   Total other income (expenses), net   (28,785 )   (21,402 )   (62,419 )   (42,404 )   Earnings before income taxes 61,492 65,998 181,413 174,590   Federal and state income tax expense   18,582     15,023     55,595     44,894     Net earnings 42,910 50,975 125,818 129,696   Preferred stock dividends (3,436 ) (4,341 ) (7,777 ) (8,682 )   Loss on extinguishment of preferred stock   (1,995 )   -     (1,995 )   -     Net earnings available for common stockholders $ 37,479   $ 46,634   $ 116,046   $ 121,014     Net earnings available for common stockholders per share: Basic $ 0.30   $ 0.39   $ 0.94   $ 1.01   Diluted $ 0.30   $ 0.39   $ 0.94   $ 1.00   Dividends declared on common stock per share $ 0.15   $ 0.10   $ 0.30   $ 0.20     Weighted average shares outstanding: Basic   124,008     119,873     122,905     119,832   Diluted   124,242     120,799     123,188     120,546   Select Financial Information Continued The following table sets forth certain select unaudited financial information for the company’s segments and a reconciliation of EBIT to net earnings for the three and six months ended June 30, 2008 and 2007.   Three Months EndedJune 30,   Six Months EndedJune 30, Segment Data 2008   2007 2008   2007 (In thousands) Revenues from external customers: Transportation and Storage $ 168,333 $ 161,706 $ 355,384 $ 330,736 Gathering and Processing 440,323 305,874 855,985 601,929 Distribution   122,922   119,514   471,557   433,771 Total segment operating revenues 731,578 587,094 1,682,926 1,366,436 Corporate and other   1,477   955   2,827   1,845 $ 733,055 $ 588,049 $ 1,685,753 $ 1,368,281   Depreciation and amortization: Transportation and Storage $ 25,691 $ 21,062 $ 50,752 $ 41,771 Gathering and Processing 15,346 14,549 30,816 29,136 Distribution   7,722   7,395   15,294   15,013 Total segment depreciation and amortization 48,759 43,006 96,862 85,920 Corporate and other   562   660   1,082   1,210 $ 49,321 $ 43,666 $ 97,944 $ 87,130   EBIT: Transportation and Storage segment $ 94,313 $ 95,559 $ 203,694 $ 210,777 Gathering and Processing segment 12,134 12,604 40,690 21,486 Distribution segment 2,819 6,444 33,120 39,989 Corporate and other   2,829   2,537   5,213   5,669 Total EBIT 112,095 117,144 282,717 277,921 Interest expense   50,603   51,146   101,304   103,331 Earnings before income taxes 61,492 65,998 181,413 174,590 Federal and state income tax expense   18,582   15,023   55,595   44,894 Net earnings 42,910 50,975 125,818 129,696 Preferred stock dividends 3,436 4,341 7,777 8,682 Loss on extinguishment of preferred stock   1,995   -   1,995   - Net earnings available for common stockholders $ 37,479 $ 46,634 $ 116,046 $ 121,014 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 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 net cash flows provided by operating activities. Select Financial Information Continued The following table sets forth certain select, unaudited financial information for the company as of June 30, 2008 and December 31, 2007 and for the six months ended June 30, 2008 and 2007.   June 30,   December 31, 2008 2007 (In thousands of dollars) Total assets $ 8,109,952 $ 7,397,913 Long Term Debt 3,315,661 2,960,326 Short term debt and notes payable 424,980 557,680 Preferred stock 182,029 230,000 Common equity 2,135,131 1,975,806 Total capitalization 6,057,801 5,723,812     Six Months ended June 30, 2008 2007 Cash flow information: (In thousands of dollars) Cash flow provided by operating activities $ 347,344 $ 289,341 Changes in working capital 34,406 11,084 Net cash flow provided by operating activities before changes in working capital 312,938 278,257 Net cash flow used in investing activities (345,542 ) (243,249 ) Net cash flow provided by (used in) financing activities   223,827     (51,705 ) Change in cash and cash equivalents $ 225,629   $ (5,613 ) Select Financial Information Continued The following table sets forth a reconciliation of EBIT to Adjusted EBIT (a non-GAAP measure) for the company for the three months ended June 30, 2008 and 2007.   Three months ended June 30, 2008   2007 (In thousands of dollars) Southern Union Company: Reported EBIT $ 112,095 $ 117,144 Adjustments: Mark-to-market unrealized hedging loss   22,251   - Adjusted EBIT $ 134,346 $ 117,144   Computation of Adjusted net operating revenues: Reported Operating revenues $ 733,055 $ 588,049 Reported Cost of gas and other energy 459,032 324,626 Reported Revenue-related taxes 5,974 5,675 Adjustments: Mark-to-market unrealized hedging loss   22,251   - Adjusted net operating revenues $ 290,300 $ 257,748   Gathering & processing segment: Reported EBIT $ 12,134 $ 12,604 Adjustments: Mark-to-market unrealized hedging loss   22,251   - Adjusted EBIT $ 34,385 $ 12,604 Depreciation and amortization expense   15,346   14,549 Adjusted EBITDA $ 49,731 $ 27,153