SUG Southern Union Company Common Stock

Southern Union Company (NYSE:SUG) today reported second quarter net earnings available for common stockholders of $69.4 million ($.55 per share), compared with $31.1 million ($.25 per share) in the prior year. Adjusted net earnings for the same period were $53.0 million ($.42 per share), compared with $43.8 million ($.35 per share) in the prior year. The following table provides a reconciliation of net earnings to adjusted net earnings:

              Select Non-GAAP Financial Information         Three months ended June 30, ($000s, except per share amounts)         2010       2009   Net earnings available for common stockholders $ 69,424       $ 31,110 After-tax adjustments: MTM (gain) loss on open economic hedges $ (14,009 ) $ 3,512 MTM (loss) gain recorded in prior accounting period $ (5,697 ) $ 9,147 Loss on extinguishment of preferred stock $ 3,295 $ - Adjusted net earnings available for common stockholders $ 53,013 $ 43,769 Reported net earnings per share available for common stockholders $ 0.55 $ 0.25 Adjusted net earnings per share available for common stockholders         $ 0.42         $ 0.35    

George L. Lindemann, chairman and CEO, said, “I am very pleased with our results for the second quarter. Our strong, year-over-year growth was largely a result of the Trunkline LNG Company, LLC (“Trunkline LNG”) Infrastructure Enhancement Project being placed in service and the impact of new rates at our Missouri Gas Energy distribution company. Our regulated business units continue to drive solid performance for our shareholders.”

Eric D. Herschmann, president and COO, added, “We are also pleased to announce that with the recently completed senior note offerings, Florida Gas Transmission Company, LLC (“FGT”) has successfully completed its external financing plans for the Phase VIII expansion project. Construction of the project is well underway as we work towards a spring 2011 in-service date.” FGT is a wholly owned subsidiary of Citrus Corp. (“Citrus”), a joint-venture between affiliates of Southern Union Company and El Paso Corporation.

For the six-month period ended June 30, 2010, the company reported net earnings available for common stockholders of $123.7 million ($.99 per share), compared with $75.2 million ($.61 per share) in the prior year. Adjusted net earnings for the same period were $108.2 million ($.86 per share), compared with $113.4 million ($.91 per share) in the prior year. The following table provides a reconciliation of net earnings to adjusted net earnings:

            Select Non-GAAP Financial Information         Six months ended June 30, ($000s, except per share amounts)         2010       2009 Net earnings available for common stockholders $ 123,713       $ 75,196 After-tax adjustments: MTM (gain) loss on open economic hedges $ (10,447 ) $ 13,236 MTM (loss) gain recorded in prior accounting period $ (12,581 ) $ 18,319 Loss on extinguishment of preferred stock $ 3,295 $ - Provision for hurricane related repair and abandonment costs $ - $ 10,091 Environmental insurance settlements $ - $ (3,485 ) Change in tax treatment for Medicare Part D subsidies $ 4,216 $ - Adjusted net earnings available for common stockholders $ 108,196 $ 113,357 Reported net earnings per share available for common stockholders $ 0.99 $ 0.61 Adjusted net earnings per share available for common stockholders         $ 0.86         $ 0.91    

2Q 2010 Segment Results

• Southern Union’s transportation and storage segment posted EBIT of $111.2 million, compared with EBIT of $97.9 million in the prior year. The increase was primarily attributable to higher operating revenues at Trunkline LNG, a subsidiary of Panhandle Eastern Pipe Line Company, LP, and higher contributions from the company’s unconsolidated investment in Citrus, largely due to higher equity AFUDC resulting from the FGT Phase VIII expansion project.
• The gathering and processing segment reported adjusted EBIT of $9.1 million, compared with adjusted EBIT of $18.7 million in the prior year primarily due to lower realized natural gas and natural gas liquids prices. Total processed volumes were 436,178 MMBtu/d in the 2010 period compared with 407,777 MMBtu/d in 2009. Equity volumes, which the company primarily receives through its percentage of proceeds contracts with producers, averaged 37,000 MMBtu/d of natural gas liquids equivalents and 17,000 MMBtu/d of natural gas.
• The company’s distribution segment posted EBIT of $6.9 million compared to a loss before interest and taxes of $291,000 in the prior year. The increase was largely due to higher net operating revenue, primarily a result of new rates that went into effect on February 28, 2010.
• Interest expense was $55.4 million in the quarter compared with $48.4 million in the prior year. Interest expense increased primarily due to the impact of lower capitalized interest costs due to lower outstanding capital project balances.
• Income taxes were $28.6 million in the current quarter compared with $13.8 million in the prior year. The increase was primarily due to higher pre-tax earnings. The effective income tax rate is expected to average approximately 31% for the 2010 fiscal year.

2010 Earnings Guidance

Southern Union reaffirms its expected 2010 net earnings guidance of $1.92 to $2.12 per share (GAAP basis) and adjusted net earnings of $1.75 to $1.95 per share.

Quarterly Report on Form 10-Q

Southern Union will provide additional information about its first quarter 2010 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 866-543-6407 (international callers dial 617-213-8898) and enter the passcode 90018846. 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 71830228. The webcast may be accessed online through the Investor’s section of the company’s web site at www.sug.com.

Non-GAAP Financial Measures

The company uses adjusted net earnings (per share), 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 (per share), 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.

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 more than 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.

Cautionary Statements

This news release includes forward-looking statements and projections. The company has made every reasonable effort to ensure that the information and assumptions on which these statements and projections are based are current, reasonable, and complete. However, a variety of factors could cause actual results to differ materially from the projections, anticipated results or other expectations expressed in this release. Important factors that could cause actual results to differ materially from the projections, anticipated results or other expectations herein are enumerated in Southern Union’s Securities and Exchange Commission filings. While the company makes these statements and projections in good faith, neither the company nor its management can guarantee that anticipated future results will be achieved. Reference must be made to those filings for additional important factors that may affect actual results. 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 financial information for the company for the three and six months ended June 30, 2010 and 2009.

      Three Months Ended     Six Months Ended June 30, June 30, 2010     2009 2010     2009 (In thousands, except per share amounts)   Operating revenues $ 573,096 $ 453,025 $ 1,332,090 $ 1,136,888   Operating expenses: Cost of gas and other energy 246,626 191,917 685,635 571,979 Operating, maintenance and general 118,723 116,539 232,608 245,216 Depreciation and amortization 57,559 53,360 112,753 105,830 Revenue-related taxes 4,806 4,816 21,848 22,022 Taxes, other than on income and revenues   13,638     13,739     28,224     27,480   Total operating expenses   441,352     380,371     1,081,068     972,527     Operating income 131,744 72,654 251,022 164,361   Other income (expenses): Interest expense (55,436 ) (48,365 ) (106,312 ) (96,735 ) Earnings from unconsolidated investments 27,542 22,694 46,120 39,267 Other, net   (352 )   132     (63 )   6,094   Total other income (expenses), net   (28,246 )   (25,539 )   (60,255 )   (51,374 )   Earnings before income taxes 103,498 47,115 190,767 112,987   Federal and state income tax expense   28,609     13,835     59,418     33,450     Net earnings 74,889 33,280 131,349 79,537   Preferred stock dividends (2,170 ) (2,170 ) (4,341 ) (4,341 ) Loss on extinguishment of preferred stock   (3,295 )   -     (3,295 )   -     Net earnings available for common stockholders $ 69,424   $ 31,110   $ 123,713   $ 75,196     Net earnings available for common stockholders per share: Basic $ 0.56 $ 0.25 $ 0.99 $ 0.61 Diluted 0.55 0.25 0.99 0.61   Dividends declared on common stock per share $ 0.15 $ 0.15 $ 0.30 $ 0.30   Weighted average shares outstanding Basic 124,474 124,047 124,445 124,046 Diluted 125,244 124,274 125,202 124,123  

Select Financial Information Continued

The following table sets forth certain selected financial information for the company for the periods presented.

          June 30,         December 31, 2010 2009 (In thousands of dollars) Total assets $ 7,989,115   $ 8,075,074     Long term debt $ 3,421,079 $ 3,421,236 Short term debt and notes payable 271,975 220,500 Preferred stock - 115,000 Common equity   2,466,908     2,354,946   Total capitalization $ 6,159,962   $ 6,111,682       Six Months Ended June 30, 2010 2009 Cash flow information: (In thousands of dollars) Cash flow provided by operating activities $ 242,492 $ 381,825 Changes in working capital (16,663 ) 171,767

Net cash flow provided by operating activities before changes in working capital

259,155 210,058 Net cash flow used in investing activities (129,020 ) (230,371 ) Net cash flow provided by financing activities   (121,429 )   (140,540 ) Change in cash and cash equivalents $ (7,957 ) $ 10,914    

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     Six Months Ended June 30, June 30, 2010       2009 2010       2009 (In thousands) Revenues from external customers:     Transportation and Storage $ 187,090 $ 172,615 $ 373,765 $ 364,910 Gathering and Processing 282,707 175,084 543,567 343,389 Distribution   99,711     104,532     407,972     426,556   Total segment operating revenues 569,508 452,231 1,325,304 1,134,855 Corporate and other activities   3,588     794     6,786     2,033  

Total consolidated revenues from external customers

$ 573,096   $ 453,025   $ 1,332,090   $ 1,136,888     Depreciation and amortization: Transportation and Storage $ 30,896 $ 28,483 $ 60,073 $ 56,346 Gathering and Processing 17,971 16,543 35,291 32,956 Distribution   7,967     7,808     15,923     15,479   Total segment depreciation and amortization 56,834 52,834 111,287 104,781 Corporate and other activities   725     526     1,466     1,049   Total depreciation and amortization expense $ 57,559   $ 53,360   $ 112,753   $ 105,830     Segment performance: Transportation and Storage EBIT $ 111,246 $ 97,922 $ 213,671 $ 191,144 Gathering and Processing EBIT 40,526 (1,523 ) 47,081 (12,956 ) Distribution EBIT   6,865     (291 )   35,710     31,347   Total segment EBIT 158,637 96,108 296,462 209,535 Corporate and other activities 297 (628 ) 617 187 Interest expense 55,436 48,365 106,312 96,735 Federal and state income tax expense   28,609     13,835     59,418     33,450   Net earnings 74,889 33,280 131,349 79,537 Preferred stock dividends 2,170 2,170 4,341 4,341 Loss on extinguishment of preferred stock   3,295     -     3,295     -   Net earnings available for common stockholders $ 69,424   $ 31,110   $ 123,713   $ 75,196  

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 June 30, 2010 and 2009.

        Three Months Ended June 30, 2010       2009 (In thousands of dollars) Southern Union Company: Reported EBIT $ 158,934 $ 95,480 Adjustments: Mark-to-market (gain) loss on open economic hedges (22,319 ) 5,605 Mark-to-market (loss) gain recognized in prior periods   (9,076 )   14,598   Adjusted EBIT $ 127,539   $ 115,683     Gathering & processing segment: Reported EBIT $ 40,526 $ (1,523 ) Adjustments: Mark-to-market (gain) loss on open economic hedges (22,319 ) 5,605 Mark-to-market (loss) gain recognized in prior periods   (9,076 )   14,598   Adjusted EBIT $ 9,131   $ 18,680