Southern Union Reports Third Quarter Results

Southern Union Company (NYSE:SUG) today reported earnings before interest and taxes from continuing operations ("EBIT”) of $88.4 million for the quarter ended September 30, 2006, compared with $67.4 million in the prior year. Net earnings from continuing operations for the period were $11.8 million ($.06 per diluted share) on operating revenues of $564.4 million, compared with net earnings from continuing operations of $26.1 million ($.19 per diluted share) on operating revenues of $186.5 million in 2005. For the same period, net loss available for common shareholders was $167.0 million ($1.42 per diluted share) in 2006, compared with net earnings of $15.2 million ($.13 per diluted share) in 2005. Earnings from continuing operations as reported reflect the full interest expense and debt issuance cost impact of the $1.6 billion bridge loan utilized by the company to fund the purchase of Southern Union Gas Services (formerly known as Sid Richardson Energy Services) on March 1, 2006. Southern Union utilized the proceeds from the August sales of its Pennsylvania and Rhode Island distribution assets to retire approximately $1.1 billion of the bridge loan. Excluding the bridge loan interest and related debt issuance costs associated with the $1.1 billion repayment, net earnings from continuing operations would increase by $9.1 million ($.08 per diluted share) to $20.9 million ($.14 per diluted share). Proceeds from the issuance of $600 million of 7.20% fixed/floating rate junior subordinated notes were used to retire the remaining $525 million of bridge debt in October. For the first nine months of 2006, Southern Union reported EBIT of $327.1 million, compared with $231.5 million in the prior year. Net earnings from continuing operations were $101.6 million ($.76 per diluted share) on operating revenues of $1.7 billion, compared with net earnings from continuing operations of $100.1 million ($.77 per diluted share) on operating revenues of $833.8 million for the comparable 2005 period. For the same periods, net loss available for common shareholders was $64.0 million ($.55 per diluted share) in 2006 compared with net earnings of $114.4 million ($1.02 per diluted share) in 2005. Excluding the bridge loan interest and related debt issuance costs associated with the $1.1 billion repayment, net earnings from continuing operations for the nine month period would increase by $24.9 million ($.22 per diluted share) to $126.5 million ($.98 per diluted share).       Three Months Ended September 30, 2006   Nine Months Ended September 30, 2006 Net earnings per share from continuing operations $.06  $.76  Adjustment to reflect $1.1 billion repayment of bridge loan   $.08    $.22  Adjusted net earnings per share from continuing operations   $.14    $.98    Earnings from discontinued operations relate to the sales of the company’s Pennsylvania and Rhode Island natural gas distribution assets which closed on August 24, 2006. The increase in operating results was attributable to improvement in Southern Union’s transportation and storage segment and the inclusion of the midstream business. The transportation and storage segment recorded EBIT of $86.0 million for the quarter ended September 30, 2006, compared with $68.1 million for the same period in 2005. This improvement was derived primarily from expansions at the company’s Trunkline LNG (liquefied natural gas) import facility and higher transportation revenues. Our midstream segment, Southern Union Gas Services, recorded EBIT of $17.0 million for the quarter. The cash settlement value of the company’s natural gas put option contracts not reflected in segment EBIT was $21.5 million for the quarter. The EBIT contribution from continuing operations in our distribution segment was a loss of $4.9 million, compared with a profit of $3.8 million in the 2005 quarter. Commenting on the quarter, George L. Lindemann, chairman, president and CEO, said, "Southern Union made significant strides towards transforming and upgrading its asset portfolio in the third quarter. In August, we closed on the sales of our Pennsylvania and Rhode Island distribution assets, and in September we announced a series of transactions designed to double our interest in Florida Gas Transmission and eliminate our ownership in Transwestern Pipeline. We believe these events will create long-term value for our shareholders.” Key Factors Impacting Third Quarter 2006 Performance Relative to Prior Year Southern Union’s transportation and storage segment posted EBIT of $86.0 million, compared with $68.1 million in the prior year. The increase was primarily driven by improved results at Trunkline LNG and increased transportation revenue, partially offset by a decrease in the company’s equity earnings from CCE Holdings, LLC. The gathering and processing segment reported EBIT of $17.0 million for the quarter. Operating cash flow for the segment, which is calculated as earnings before interest and taxes, plus depreciation expense, plus any cash settlement related to the company’s put options, less any other non-cash items was $52.4 million for the quarter. The company did not own the midstream assets in the prior comparable quarter. EBIT for the company’s ongoing distribution segment (predominantly Missouri Gas Energy) decreased $8.7 million to a loss of $4.9 million. The decrease was primarily due to a $5.5 million decrease in taxes primarily due to a property tax refund received in 2005 and a $3.6 million decrease in operating expenses primarily due to a true-up pension credit received in 2005 as permitted by a Missouri Public Service Commission 2004 rate order. Interest expense increased $25.4 million to $56.9 million for the quarter, compared to a year ago. The company’s aforementioned $1.6 billion bridge loan accounted for approximately $17.6 million of the increase. Debt issuance cost amortization related to the bridge loan accounted for another $2.6 million in the quarter. The company retired approximately $1.1 billion of the bridge loan upon closing of the aforementioned local distribution company asset sales on August 24, 2006. The remainder of the bridge loan was retired using the proceeds from the company’s 7.2% $600 million junior subordinated note offering in October 2006. The remainder of the increase was due to higher average balances and higher average interest rates. 2006 Earnings Guidance Update Southern Union has affirmed its prior 2006 earnings guidance from continuing operations in the range of $1.35 to $1.45 per share, including interest expense and debt cost amortization related to the company’s bridge financing of its Southern Union Gas Services acquisition. The 2006 outlook reflects the earnings per share from continuing operations, excluding unusual or non-recurring items, which will be presented in accordance with generally accepted accounting principles on the company’s 2006 Statement of Operations. Quarterly Report on Form 10-Q Southern Union will provide additional information about its third quarter 2006 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 2:00 p.m. Eastern time to discuss quarterly results, recent events and outlook. To access the call, dial 866-578-5801 (international callers dial 617-213-8058) and enter the passcode 17884961. 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 85841654. The investor call is being webcast by CCBN and may be accessed through Southern Union’s web site at www.sug.com or through CCBN’s individual investor center at www.companyboardroom.com. Institutional investors may access the call via 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 the nation’s second largest natural gas pipeline system with more than 22,000 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 18,000 miles of interstate pipelines that transport natural gas from the San Juan, Anadarko and Permian Basins, the Rockies, the Gulf of Mexico, Mobile Bay, South Texas and the Panhandle regions of Texas and Oklahoma to major markets in the Southeast, West, 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 unaudited financial information for the Company for the three and nine months ended September 30, 2006 and 2005.   Three months ended September 30, Nine months ended September 30, 2006  2005  2006  2005  (In thousands of dollars, except shares and per share amounts)   Operating revenues $ 564,418  $ 186,480  $ 1,663,939  $ 833,816    Operating expenses: Cost of gas and other energy 338,730  37,636  975,629  314,066  Revenue-related taxes 3,191  3,414  23,564  24,696  Operating, maintenance and general 102,775  72,585  279,910  221,831  Depreciation and amortization 40,279  21,932  109,800  68,567  Taxes, other than on income and revenues 9,482  4,395  32,436  24,159  Total operating expenses 494,457  139,962  1,421,339  653,319  Operating income 69,961  46,518  242,600  180,497    Other income (expenses): Interest (56,929) (31,558) (162,128) (95,041) Earnings from unconsolidated investments 19,257  22,171  46,656  57,744  Other, net (810) (1,292) 37,833  (6,727) Total other income (expenses), net (38,482) (10,679) (77,639) (44,024)   Earnings from continuing operations before income taxes 31,479  35,839  164,961  136,473    Federal and state income taxes 19,650  9,761  63,392  36,359    Net earnings from continuing operations 11,829  26,078  101,569  100,114    Discontinued operations: Earnings (loss) from discontinued operations before income tax benefit (27,438) (8,019) 6,111  43,000  Federal and state income tax expense (benefit) 147,035  (1,532) 158,642  15,652  Net earnings (loss) from discontinued operations (174,473) (6,487) (152,531) 27,348    Net earnings (loss) (162,644) 19,591  (50,962) 127,462    Preferred stock dividends (4,341) (4,342) (13,023) (13,023)   Net earnings (loss) available for common stockholders $ (166,985) $ 15,249  $ (63,985) $ 114,439    Net earnings available for common stockholders from continuing operations per share: Basic $ 0.06  $ 0.20  $ 0.78  $ 0.80  Diluted $ 0.06  $ 0.19  $ 0.76  $ 0.77    Net earnings (loss) available for common stockholders per share: Basic $ (1.44) $ 0.14  $ (0.57) $ 1.05  Diluted $ (1.42) $ 0.13  $ (0.55) $ 1.02  Dividends declared on common stock per share $ 0.10  $ -  $ 0.30  $ -  Weighted average shares outstanding: Basic 115,801,063  111,032,451  113,150,454  108,721,451  Diluted 117,785,890  114,934,039  116,139,257  112,569,608    Select Financial Information Continued The following table sets forth certain select unaudited financial information for the Company’s segments, a reconciliation of EBIT to net earnings and cash flow information for the three and nine months ended September 30, 2006 and 2005.   Three Months Ended Nine Months Ended September 30, September 30, 2006  2005  2006  2005  (In thousands) (In thousands) Revenues from external customers: Transportation and Storage $ 143,397  $ 115,945  $ 422,149  $ 361,766  Gathering and Processing 347,386  -  779,711  -  Distribution 72,365  68,855  458,886  468,537  Total segment operating revenues 563,148  184,800  1,660,746  830,303  Corporate and other 1,270  1,680  3,193  3,513  $ 564,418  $ 186,480  $ 1,663,939  $ 833,816    Depreciation and amortization: Transportation and Storage $ 18,364  $ 15,145  $ 52,823  $ 45,537  Gathering and Processing 13,932  -  32,884  -  Distribution 7,514  7,198  22,889  22,332  Total segment depreciation and amortization 39,810  22,343  108,596  67,869  Corporate and other 469  (411) 1,204  698  $ 40,279  $ 21,932  $ 109,800  $ 68,567    Earnings (loss) from unconsolidated investments: Transportation and Storage $ 19,382  $ 21,916  $ 46,769  $ 57,569  Gathering and Processing $ (309) $ -  $ (309) $ -  Corporate and other 184  255  196  175  $ 19,257  $ 22,171  $ 46,656  $ 57,744    Other income (expense), net: Transportation and Storage $ (178) $ 72  $ 3,116  $ 1,387  Gathering and Processing 335  -  1,519  -  Distribution (1,086) (773) (3,221) (2,280) Total segment other income (expense), net (929) (701) 1,414  (893) Corporate and other 119  (591) 36,419  (5,834) $ (810) $ (1,292) $ 37,833  $ (6,727)   Segment performance: Transportation and Storage EBIT $ 85,990  $ 68,097  $ 248,802  $ 207,974  Gathering and Processing EBIT 17,001  -  42,031  -  Distribution EBIT (4,865) 3,835  18,748  33,633  Total segment EBIT 98,126  71,932  309,581  241,607  Corporate and other (9,718) (4,535) 17,508  (10,093) Interest 56,929  31,558  162,128  95,041  Federal and state income taxes 19,650  9,761  63,392  36,359  Net earnings from continuing operations 11,829  26,078  101,569  100,114  Net earnings (loss) from discontinued operations before income taxes (27,438) (8,019) 6,111  43,000  Federal and state income taxes (benefit) 147,035  (1,532) 158,642  15,652  Net earnings(loss) from discontinued operations (174,473) (6,487) (152,531) 27,348  Net earnings (loss) (162,644) 19,591  (50,962) 127,462  Preferred stock dividends 4,341  4,342  13,023  13,023  Net earnings (loss) available for common stockholders $ (166,985) $ 15,249  $ (63,985) $ 114,439    Cash flow information: Cash flow provided by (used in) operating activities 28,600  (55,600) 328,700  251,900  Changes in working capital (37,300) (101,300) 97,700  12,800  Net cash flow provided by operating activities before changes in working capital 65,900  45,700  231,000  239,100  Net cash flow provided by (used in) investing activities 981,453  (74,538) (688,295) (212,250) Net cash flow provided by (used in) financing activities (1,040,324) 130,177  349,619  (69,037)   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 unaudited financial information for the Company as of September 30, 2006 and December 31, 2005.   September 30, December 31, 2006  2005  (In thousands of dollars)   Total assets $ 6,121,109  $ 5,836,819  Long Term Debt 1,631,997  2,049,141  Short term debt and notes payable 1,172,755  546,648  Preferred stock 230,000  230,000  Common equity 1,699,090  1,624,069  Total capitalization 4,733,842  4,449,858