Southern Union EPS Up 21%; 2008 EPS Guidance Reaffirmed at $1.80 to $1.90

Southern Union Company (NYSE:SUG) today reported net earnings available for common stockholders for the quarter ended March 31, 2008, of $78.6 million ($.64 per fully diluted share) compared with $74.4 million ($.62 per share) in the prior year. Excluding selected items, the prior year’s net earnings available for common stockholders would have been $64.2 million ($.53 per share) for the quarter.   Three months ended March 31, ($000s, except per share amounts)     2008       2007   Operating revenues $ 952,698   $ 780,232 Operating income $ 153,555 $ 129,594 Net earnings $ 82,908 $ 78,721 Preferred stock dividends $ (4,341 ) $ (4,341 ) Net earnings available to common stockholders $ 78,567 $ 74,380 After-tax adjustment for selected items $ - $ (10,223 ) Adjusted net earnings available to common stockholders $ 78,567 $ 64,158 Adjusted net earnings per share available to common stockholders   $ 0.64     $ 0.53   Selected items in 2007 primarily include a $14.1 million pretax nonrecurring gain related to the settlement of litigation. Net operating revenue, calculated as revenue less cost of gas and other energy and revenue related taxes, increased $43.5 million or 16%, to $323.6 million from $280.1 million in the prior year. For the quarter ended March 31, 2008, Southern Union reported earnings before interest and taxes ("EBIT”) of $170.6 million compared with adjusted EBIT (excluding the aforementioned selected items) of $146.7 million in the prior period, representing an increase of 16%. The increase in adjusted operating results was primarily attributable to increased contributions from Southern Union’s gathering and processing and transportation and storage segments. The company’s gathering and processing segment, Southern Union Gas Services, recorded EBIT of $28.6 million for the quarter compared with $8.9 million for the same period in the prior year, an increase of 221%. The transportation and storage segment recorded EBIT of $109.4 million compared with adjusted EBIT of $101.1 million in 2007, representing an increase of 8%. Management’s Perspective Commenting on the first quarter, George L. Lindemann, chairman, president and CEO, said, "We are very pleased with the quarterly financial performance across all of our business segments. From a year-over-year perspective, we are proud to have been able to grow comparable earnings per share by 21%. We are also pleased to report that we are reaffirming our annual earnings guidance in the range of $1.80 to $1.90 per share.” Senior executive vice president Eric D. Herschmann added, "Florida Gas Transmission continues to make significant progress on its Phase VIII expansion. It has already signed precedent agreements with shippers for 75% of the expansion capacity and we are confident that additional capacity will be contracted prior to filing the FERC certificate this fall. At our gathering and processing segment, we are pleased to report that we have fully hedged a total of 30,000 MMBtu/d of our 2008 equity volumes at $15.02 per MMBtu and have hedged an additional 10,000 MMBtu/d of processing spread exposure at $7.10. We have also been active in the market for 2009, adding several positions to our program that will help solidify next year’s earnings and cash flow.” Key Factors Impacting First Quarter 2008 Performance Relative to Prior Year Southern Union’s transportation and storage segment posted EBIT of $109.4 million, compared with adjusted EBIT of $101.1 million in the prior year. The $8.3 million increase was primarily attributable to an $18.0 million increase in operating revenues at Panhandle Energy, primarily a result of higher transportation and storage revenues, offset partially by $4.4 million of higher operating expense and $4.4 million of higher depreciation expense. The gathering and processing segment reported EBIT of $28.6 million compared with $8.9 million in the prior year. Gross margin increased by $25.2 million, primarily due to improved operating efficiencies resulting in increased equity volumes, as well as higher realized natural gas and natural gas liquids prices, partially offset by a $5.3 million increase in operating expenses. EBIT for the company’s distribution segment (predominantly Missouri Gas Energy) decreased $3.2 million to $30.3 million. The decrease was due primarily to an increase in operating expenses of $3.8 million coupled with a change in the company’s residential customer class rate structure to a straight-fixed variable rate design which has the effect of normalizing margin throughout the year. Interest expense decreased $1.5 million to $50.7 million for the quarter. The decrease was primarily due to lower LIBOR-based rates, higher capitalized interest costs, and lower outstanding balances at Southern Union offset partially by higher outstanding balances at Panhandle Energy. 2008 Earnings Guidance Southern Union reaffirmed its 2008 net earnings guidance in the range of $1.80 to $1.90 per fully diluted share. Quarterly Report on Form 10-Q Southern Union will provide additional information about its first quarter 2008 results in its quarterly report on Form 10-Q expected to be filed Friday, May 9, 2008 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 Friday, May 9 at 9:00 a.m. Eastern time to discuss results, recent events and outlook. To access the call, dial 888-713-4217 (international callers dial 617-213-4869) and enter the passcode 96220510. 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 19378937. 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 PCK7CLLAX or enter the following URL www.theconferencingservice.com/prereg/key.process and use the same registration key. The investor call is being webcast by CCBN and may be accessed through Southern Union’s web site at www.sug.com, through Thomson/CCBN’s individual investor center at www.companyboardroom.com, or by visiting any of the investor sites in Thomson/CCBN’s individual investor network. Institutional investors may access the call via Thomson/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 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. Through Panhandle Energy and its 50% equity ownership of Florida Gas Transmission, Southern Union’s interstate pipeline interests operate approximately 15,000 miles of interstate pipelines that transport natural gas from the Anadarko and San Juan basins, the Rockies, the Gulf of Mexico, Mobile Bay and South Texas to major markets in the Southeast, 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 months ended March 31, 2008 and 2007.     Three Months Ended March 31,   2008       2007   (In thousands, except per share amounts) Operating revenues $ 952,698 $ 780,232   Operating expenses: Cost of gas and other energy 610,169 483,085 Revenue-related taxes 18,950 17,019 Operating, maintenance and general 108,910 95,195 Depreciation and amortization 48,623 43,464 Taxes, other than on income and revenues   12,491     11,875   Total operating expenses   799,143     650,638     Operating income 153,555 129,594   Other income (expenses): Interest expense (50,701 ) (52,185 ) Earnings from unconsolidated investments 16,729 30,896 Other, net   338     287   Total other income (expenses), net   (33,634 )   (21,002 )   Earnings before income taxes 119,921 108,592   Federal and state income tax expense   37,013     29,871     Net earnings 82,908 78,721   Preferred stock dividends   (4,341 )   (4,341 )   Net earnings available for common stockholders $ 78,567   $ 74,380     Net earnings available for common stockholders per share: Basic $ 0.65 $ 0.62 Diluted $ 0.64 $ 0.62 Cash dividends declared on common stock per share: $ 0.15 $ 0.10   Weighted average shares outstanding: Basic 121,803 119,790 Diluted 122,139 120,277 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 months ended March 31, 2008 and 2007.     Three Months Ended March 31, Segment Data   2008     2007 (In thousands) Revenues from external customers: Transportation and Storage $ 187,051 $ 169,030 Gathering and Processing 415,662 296,055 Distribution   348,635   314,257 Total segment operating revenues 951,348 779,342 Corporate and other   1,350   890 $ 952,698 $ 780,232   Depreciation and amortization: Transportation and Storage $ 25,061 $ 20,709 Gathering and Processing 15,470 14,587 Distribution   7,572   7,618 Total segment depreciation and amortization 48,103 42,914 Corporate and other   520   550 $ 48,623 $ 43,464     EBIT: Transportation and Storage segment $ 109,381 $ 115,218 Gathering and Processing segment 28,556 8,882 Distribution segment 30,301 33,545 Corporate and other   2,384   3,132 Total EBIT 170,622 160,777 Interest expense   50,701   52,185 Earnings before income taxes 119,921 108,592 Federal and state income tax expense   37,013   29,871 Net earnings 82,908 78,721 Preferred stock dividends   4,341   4,341 Net earnings available for common stockholders $ 78,567 $ 74,380 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 March 31, 2008 and December 31, 2007 and for the three months ended March 31, 2008 and 2007.     March 31,   December 31,   2008     2007   (In thousands of dollars) Total assets $ 7,634,524 $ 7,397,913 Long Term Debt 2,949,758 2,960,326 Short term debt and notes payable 509,552 557,680 Preferred stock 230,000 230,000 Common equity 2,105,896 1,975,806 Total capitalization 5,795,206 5,723,812       Three Months ended March 31,   2008     2007   Cash flow information: (In thousands of dollars) Cash flow provided by operating activities $ 239,554 $ 171,779 Changes in working capital 74,006 5,634 Net cash flow provided by operating activities before changes in working capital 165,548 166,145 Net cash flow used in investing activities (215,598 ) (118,100 ) Net cash flow provided by (used in) financing activities   3,043     (58,701 ) Change in cash and cash equivalents $ 26,999   $ (5,022 ) Select Financial Information Continued The following table sets forth a reconciliation of EBIT to Adjusted EBIT for the company for the three months ended March 31, 2008 and 2007.     Three months ended March 31,   2008     2007   (In thousands of dollars) Southern Union Company: Reported EBIT $ 170,622 $ 160,777 Adjustments: Litigation settlement   -   (14,100 ) Adjusted EBIT $ 170,622 $ 146,677     Transportation & storage segment: Reported EBIT $ 109,381 $ 115,218 Adjustments: Litigation settlement   -   (14,100 ) Adjusted EBIT $ 109,381 $ 101,118