EX-99.1 NEWS RELEASE 2 exh991.htm EXHIBIT 99.1 Exhibit 99.1
Exhibit 99.1

[Missing Graphic Reference]
06-24
For further information:
John F. Walsh
Director of Investor Relations
Southern Union Company
1-800-321-7423


SOUTHERN UNION REPORTS THIRD QUARTER RESULTS
Investor Call & Webcast Scheduled for Today at 2 P.M. ET

·  
EBIT of $88 million up 31 percent
·  
Increases driven by interstate pipeline and midstream segments

HOUSTON, November 9, 2006 - 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, 
  
  (In thousands of dollars, except shares and per share amounts)     
2006
    
2005
    
2006
    
2005
  
              
                          
                           
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
  
$
-
  
                 
0.3
    
0
  
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 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)
     (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
 
             

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