Southern Union Company (NYSE:SUG) today reported net earnings
available for common stockholders for the quarter ended September
30, 2009 of $44.7 million ($.36 per share), compared with $42.5
million ($.34 per share) in the prior year.
Adjusted net earnings available for common stockholders for the
current quarter were $42.7 million ($.34 per share), compared with
$36.0 million ($.29 per share) in the prior year. Adjusted net
earnings for the current quarter exclude a $9.4 million ($.08 per
share) mark-to-market unrealized gain on open economic hedges of
processing spreads and a $2.4 million ($.02 per share) reduction of
the provision for repair and abandonment costs recorded as a result
of damage to the company’s Sea Robin pipeline system caused by
Hurricane Ike. Adjusted net earnings for the current quarter
include a $9.8 million ($.08 per share) mark-to-market gain on
economic hedges that was recognized in 2008 but excluded from
2008’s adjusted earnings. The prior year’s adjusted net earnings
available for common stockholders exclude an $8.5 million ($.07 per
share) mark-to-market unrealized gain on open economic hedges of
processing spreads and a $2.0 million ($.02 per share) charge
related to the partial repurchase of the company’s preferred stock.
Adjusted items are shown on an after-tax basis. A reconciliation of
net earnings to adjusted net earnings for the quarter is set forth
in the following table.
Select Non-GAAP Financial Information
Three months ended Sept. 30, ($000s, except per
share amounts) 2009
2008 Net earnings available for common stockholders $
44,748 $ 42,476 After-tax adjustments: MTM (gain) loss on
open economic hedges $ (9,481 ) $ (8,518 ) MTM gain recorded in
prior accounting period $ 9,765 $ - Reduction in provision for
repair and abandonment costs $ (2,372 ) $ - Loss on extinguishment
of preferred stock $ - $ 2,036 Adjusted net earnings available for
common stockholders $ 42,660 $ 35,994 Reported net earnings per
share available for common stockholders $ 0.36 $ 0.34 Adjusted net
earnings per share available for common stockholders $ 0.34
$ 0.29
On July 17, 2009, Southern Union Gas Services, the company’s
gathering and processing subsidiary, experienced a fire at its
Keystone processing plant. As a result of the fire, the company
experienced reduced throughput volumes that negatively impacted
gross margin for the three and nine months ended September 30, 2009
by approximately $4.6 million ($.02 per share). During the same
periods, the company recorded a $4.5 million ($.02 per share)
charge to write-off equipment damaged by the fire. The company
expects the Keystone plant to be running at or near its pre-fire
capacity by year end.
For the nine month period ended September 30, 2009, the company
reported net earnings available for common stockholders of $119.9
million ($.97 per share), compared with $158.5 million ($1.28 per
share) in the prior year.
Adjusted net earnings available for common stockholders for the
nine months ended September 30, 2009 were $159.5 million ($1.28 per
share), compared with $165.9 million ($1.34 per share) in the prior
year. Adjusted net earnings for the current nine month period
exclude a $3.8 million ($.03 per share) mark-to-market unrealized
loss on open economic hedges of processing spreads and a $7.7
million ($.06 per share) charge to increase the provision for
repair and abandonment costs as a result of damage to the company’s
Sea Robin pipeline system caused by Hurricane Ike. Adjusted net
earnings for the current nine month period also include a $28.1
million ($.22 per share) mark-to-market gain on economic hedges
that was recognized in 2008 but excluded from 2008’s adjusted
earnings. The prior year’s adjusted net earnings available for
common stockholders exclude a $3.3 million ($.03 per share)
mark-to-market unrealized loss on open economic hedges of
processing spreads and a $4.0 million ($.03 per share) charge
related to the partial repurchase of the company’s preferred stock.
Adjusted items are shown on an after-tax basis. A reconciliation of
net earnings to adjusted net earnings for the nine months ended
September 30, 2009 and 2008 is set forth in the following
table.
Select Non-GAAP Financial Information
Nine months ended Sept. 30, ($000s, except per
share amounts) 2009
2008 Net earnings available for common stockholders $
119,944 $ 158,522 After-tax adjustments: MTM (gain) loss on
open economic hedges $ 3,754 $ 3,340 MTM gain recorded in prior
accounting period $ 28,085 $ - Increase to provision for repair and
abandonment costs $ 7,720 $ - Loss on extinguishment of preferred
stock $ - $ 4,031 Adjusted net earnings available for common
stockholders $ 159,503 $ 165,893 Reported net earnings per share
available for common stockholders $ 0.97 $ 1.28 Adjusted net
earnings per share available for common stockholders $ 1.28
$ 1.34
For the three months ended September 30, 2009, net operating
revenues, calculated as revenue less cost of gas and other energy
and revenue-related taxes, decreased $20.7 million to $269.9
million from $290.6 million in the prior year. Adjusted net
operating revenue, which removes the impact of mark-to-market
accounting treatment, decreased $6.5 million during the quarter to
$270.3 million. The decrease was primarily related to lower
realized commodity prices at the company’s gathering and processing
segment. A reconciliation of operating revenue to net operating
revenue and adjusted net operating revenue is available at the end
of this press release.
For the three months ended September 30, 2009, Southern Union
reported adjusted EBIT of $113.5 million, compared with adjusted
EBIT of $105.9 million in the prior period. The $7.6 million
increase was primarily due to increases of $5.2 million in the
corporate and other segment, $3.8 million in the transportation and
storage segment, and $3.6 million in the distribution segment,
offset by a $5.0 million decrease in the gathering and processing
segment. A reconciliation of EBIT to adjusted EBIT and EBIT to net
earnings is available at the end of this press release.
The company uses adjusted net earnings, adjusted net operating
revenues, and earnings before interest and taxes (“EBIT”), or
adjusted EBIT, as appropriate, as its primary measures of
evaluating financial performance. The company also believes these
measures present its financial performance in a manner that is more
consistent with the presentation used by the investment community
in its evaluation of the company’s financial performance. Adjusted
net earnings, adjusted net operating revenues, EBIT and adjusted
EBIT are non-GAAP measures and should be used in conjunction with
net earnings and other financial measures such as operating income
or net cash flows provided by operating activities.
Management’s
Perspective
Commenting on the quarter, George L. Lindemann, chairman and
CEO, said, “I am pleased that earnings and cash flows remained
strong across our business segments. We continue to diligently work
through the commissioning process for Trunkline LNG’s
Infrastructure Enhancement Project. Once in service, this project
will further enhance our stable, low-risk business profile. We are
also happy to reaffirm our 2009 adjusted earnings per share
guidance.”
Vice chairman, president and COO Eric D. Herschmann added, “We
have been actively managing our hedging program over the last
several months and are pleased to say that we have added additional
positions to our portfolio for 2010 and 2011. For 2010, we have
40,000 MMBtu per day of natural gas liquids equivalents hedged at
$10.44. We also have 5,000 MMBtu per day of natural gas hedged at
$5.33. For 2011, we have hedged 10,000 MMBtu per day of natural gas
liquids equivalents at $11.19. We also have 10,000 MMBtu per day of
natural gas hedged at $6.14.”
Key Factors Impacting Third
Quarter 2009 Performance Relative to Prior Year
- Southern Union’s transportation
and storage segment posted adjusted EBIT of $97.3 million, compared
with $93.5 million in the prior year. The $3.8 million increase was
primarily attributable to a $3.3 million increase in EBIT at
Panhandle Energy, which includes Panhandle Eastern Pipe Line
Company, LP and its subsidiaries, and a $500,000 increase in equity
earnings from the company’s unconsolidated investment in Citrus
Corp., parent of Florida Gas Transmission Company, LLC. Panhandle
Energy saw higher operating revenues of $2.7 million, lower
adjusted operating expenses of $3.6 million, excluding a $3.8
million reduction in 2009 related to revised lower estimates for
repair and abandonment costs associated with damage caused by
Hurricane Ike, and higher depreciation and amortization expense of
$2.2 million. The increase in operating revenues was largely due to
a $1.7 million increase in transportation and storage revenue,
primarily a result of higher average rates realized on Panhandle
Eastern Pipe Line, and a $1.8 million increase in LNG terminalling
revenue. Adjusted operating expenses were $3.6 million lower due to
the $9.5 million charge in the third quarter of 2008 for Hurricanes
Gustav and Ike. Excluding that charge, operating expenses in 2009
were $5.9 million higher than 2008, primarily due to an increase in
environmental reserves, and higher outside services costs for
pipeline integrity testing and legal services.
- The gathering and processing
segment reported adjusted EBIT of $8.2 million, compared with $13.2
million in the prior year. Adjusted EBIT for the quarter excludes
$15.1 million of mark-to-market unrealized gains on open economic
hedges of processing spreads and includes $15.6 million of
mark-to-market gains recognized in a prior accounting period, but
excluded from the prior period’s adjusted earnings. Gross margin
decreased by $10.8 million, after accounting for the mark-to-market
adjustments, primarily due to lower realized natural gas and
natural gas liquids prices and the impact of a fire at the Keystone
processing plant on July 17, 2009, resulting in a production outage
through August 1, 2009 and reduced throughput volumes throughout
the quarter. The company expects to experience reduced production
flow through the fourth quarter of 2009 as a result of the fire.
Operating expenses decreased by $4.8 million, primarily due to: a
$2.7 million bad debt reserve recorded in the prior period; a $1.8
million decrease in maintenance and contract service costs as a
result of the company’s 2009 cost reduction initiative; a $1.4
million provision for litigation expense recorded in the prior
period; a $1 million decrease in chemical and lubricant costs;
offset partially by a $4.5 million write-off of property and
equipment damaged by fire at the Keystone processing plant in July.
Depreciation expense increased by $1.0 million during the period
due to an increase in property, plant and equipment while equity
earnings from the company’s investment in Grey Ranch increased by
$2.3 million.
- Southern Union’s distribution
segment reported EBIT of $5.1 million for the quarter, compared
with $1.5 million in the prior year. The increase was primarily due
to a $1.7 million increase in net operating revenues, largely
attributable to the $3.7 million annual rate increase at New
England Gas Company, coupled with a $2.2 million decrease in bad
debt expense as a result of improved collectability on aged
accounts.
- EBIT for the company’s corporate
and other segment increased by $5.2 million compared to the prior
year. The increase was primarily due to higher legal fees of $3.7
million in the prior year and the collection of a $1.8 million
litigation settlement in the current period.
2009 Earnings
Guidance
Southern Union reaffirms its 2009 net earnings of $1.45 to $1.60
per share (GAAP basis) and adjusted net earnings 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 and
exclude the mark-to-market impact of open economic hedges of
processing spreads. Adjusted net earnings also exclude the increase
to the provision for repair and abandonment costs as a result of
damage to the company’s Sea Robin pipeline system caused by
Hurricane Ike.
Quarterly Report on Form
10-Q
Southern Union will provide additional information about its
third quarter 2009 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 9:00 a.m. Eastern time to discuss results, recent events and
outlook. To access the call, dial 866-510-0704 (international
callers dial 617-597-5362) and enter the passcode 19818740. 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 34044559. The webcast may be accessed online
through the Investor’s section of the company’s web site at
www.sug.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 one of North America’s largest liquefied natural gas
import terminals, 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 nine months ended September 30,
2009 and 2008.
Three Months Ended Nine Months
Ended September 30, September 30,
2009 2008
2009 2008 (In thousands
of dollars, except per share amounts) Operating revenues $
438,451 $ 657,283 $ 1,575,339 $ 2,343,036 Operating
expenses: Cost of gas and other energy 165,029 361,970 737,008
1,431,171 Operating, maintenance and general 113,270 131,076
358,486 356,265 Depreciation and amortization 53,486 50,049 159,316
147,993 Revenue-related taxes 3,560 4,736 25,582 29,660 Taxes,
other than on income and revenues 12,931
12,172 40,411 36,835 Total
operating expenses 348,276 560,003
1,320,803 2,001,924 Operating
income 90,175 97,280 254,536 341,112 Other income
(expenses): Interest expense (50,234 ) (53,232 ) (146,969 )
(154,536 ) Earnings from unconsolidated investments 24,421 21,624
63,688 59,451 Other, net 2,277 769
8,371 1,827 Total other income
(expenses), net (23,536 ) (30,839 ) (74,910 )
(93,258 ) Earnings before income taxes 66,639 66,441
179,626 247,854 Federal and state income tax expense
19,720 19,665 53,170
75,260 Net earnings 46,919 46,776 126,456
172,594 Preferred stock dividends (2,171 ) (2,264 ) (6,512 )
(10,041 ) Loss on extinguishment of preferred stock -
(2,036 ) - (4,031 ) Net
earnings available for common stockholders $ 44,748 $ 42,476
$ 119,944 $ 158,522 Net earnings
available for common stockholders per share: Basic $ 0.36 $ 0.34 $
0.97 $ 1.29 Diluted $ 0.36 $ 0.34 $ 0.97 $ 1.28 Dividends
declared on common stock per share $ 0.15 $ 0.15 $ 0.45 $ 0.45
Weighted average shares outstanding: Basic 124,057 123,975
124,050 123,264 Diluted 124,568 124,205 124,273 123,523
Select Financial Information
Continued
The following table sets forth certain selected financial
information for the company for the periods presented.
September 30, December 31,
2009 2008 (In thousands
of dollars) Total assets $ 7,804,799 $ 7,997,907
Long Term Debt $ 3,419,870 $ 3,257,434 Short term debt and
notes payable 220,500 462,082 Preferred stock 115,000 115,000
Common equity 2,306,944 2,252,952 Total
capitalization $ 6,062,314 $ 6,087,468
Nine months ended September 30, 2009
2008 Cash flow information: (In thousands of
dollars) Cash flow provided by operating activities $ 464,413 $
373,442 Changes in working capital 117,760 (26,025 )
Net cash flow provided by
operating activities before changes in working capital
346,653 399,467 Net cash flow used in investing activities (319,422
) (465,540 ) Net cash flow provided by financing activities
(142,272 ) 89,468 Change in cash and cash equivalents
$ 2,719 $ (2,630 )
Select Non-GAAP Financial
Information
The following table sets forth certain selected financial
information for the company’s segments for the periods
presented.
Three Months Ended Sept. 30,
Nine Months Ended Sept.
30, Segment Data 2009
2008 2009
2008 (In thousands of dollars) Revenues from external
customers: Transportation and Storage $ 176,093 $ 173,400 $ 541,003
$ 528,784 Gathering and Processing 189,557 392,328 532,946
1,248,313 Distribution 71,393 89,892
497,949 561,449 Total segment operating
revenues 437,043 655,620 1,571,898 2,338,546 Corporate and other
1,408 1,663 3,441 4,490
Total consolidated revenues from external customers $
438,451 $ 657,283 $ 1,575,339 $ 2,343,036
Depreciation and amortization: Transportation and Storage $
28,338 $ 26,133 $ 84,684 $ 76,885 Gathering and Processing 16,733
15,721 49,689 46,537 Distribution 7,880 7,615
23,359 22,909 Total segment
depreciation and amortization 52,951 49,469 157,732 146,331
Corporate and other 535 580 1,584
1,662 Total depreciation and amortization
expense $ 53,486 $ 50,049 $ 159,316 $ 147,993
EBIT: Transportation and Storage segment $ 101,120 $ 93,501
$ 292,264 $ 306,127 Gathering and Processing segment 7,734 26,951
(5,222 ) 67,641 Distribution segment 5,103 1,494 36,450 30,904
Corporate and other 2,916 (2,273 ) 3,103
(2,282 )
Total EBIT
116,873 119,673 326,595 402,390 Interest expense 50,234
53,232 146,969 154,536
Earnings before income taxes 66,639 66,441 179,626 247,854 Federal
and state income tax expense 19,720 19,665
53,170 75,260 Net earnings 46,919
46,776 126,456 172,594 Preferred stock dividends 2,171 2,264 6,512
10,041
Loss on extinguishment of
preferred stock
- 2,036 - 4,031
Net earnings available for common
stockholders
$ 44,748 $ 42,476 $ 119,944 $ 158,522
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 Non-GAAP Financial
Information
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 three months ended September 30, 2009 and
2008.
Three months ended Sept. 30, 2009
2008 (In thousands of dollars)
Southern Union Company: Reported EBIT $ 116,873 $ 119,673
Adjustments: Mark-to-market (gains) on open economic hedges (15,132
) (13,739 ) Mark-to-market gains recognized in prior periods 15,585
- Decrease to provision for repair and abandonment costs
(3,785 ) - Adjusted EBIT $ 113,541 $ 105,934
Gathering & processing segment: Reported EBIT $
7,734 $ 26,951 Adjustments: Mark-to-market (gains) on open economic
hedges (15,132 ) (13,739 ) Mark-to-market gains recognized in prior
periods 15,585 - Adjusted EBIT $ 8,187
$ 13,212 Transportation & storage segment:
Reported EBIT $ 101,120 $ 93,501 Adjustments: Decrease to provision
for repair and abandonment costs (3,785 ) -
Adjusted EBIT $ 97,335 $ 93,501
Select Non-GAAP Financial
Information
The following tables set forth a reconciliation of operating
revenues to net operating revenues and adjusted net operating
revenues for the company for the three months ended September 30,
2009 and 2008.
Three Months Ended Sept. 30, 2009
2008 (In thousands of dollars)
Operating revenues $ 438,451 $ 657,283 Cost of gas and other energy
(165,029 ) (361,970 ) Revenue-related taxes (3,560 )
(4,736 ) Net operating revenues 269,862
290,577 Adjustments: Mark-to-market (gains) on open economic
hedges (15,132 ) (13,739 ) Mark-to-market gains recognized in prior
periods 15,585 - Adjusted net operating
revenues $ 270,315 $ 276,838
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