X
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 FOR THE TRANSITION PERIOD FROM
|
Delaware
|
75-0571592
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
5444
Westheimer Road
|
77056-5306
|
Houston,
Texas
|
(Zip
Code)
|
(Address
of principal executive offices)
|
Title of each
class
|
Name of each exchange
on which registered
|
Common
Stock, par value $1 per share
|
New
York Stock Exchange
|
7.55%
Depositary Shares
|
New
York Stock Exchange
|
5.00%
Corporate Units
|
New
York Stock Exchange
|
Page
|
||
PART
I
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1
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15
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23
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24
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24
|
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24
|
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PART
II
|
||
25
|
||
28
|
||
29
|
||
51
|
||
53
|
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53
|
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53
|
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55
|
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PART
III
|
||
55
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||
55
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55
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55
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55
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PART
IV
|
||
56
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60
|
||
F-1
|
·
|
The
Transportation and Storage segment, which is primarily engaged in the
interstate transportation and storage of natural gas from gas producing
areas in Texas, Oklahoma, Colorado, the Gulf of Mexico and the Gulf Coast
to markets throughout the Midwest and from the Gulf Coast to Florida, and
liquefied natural gas (LNG) terminalling and
regasification services. Its operations are currently conducted
through Panhandle Eastern Pipe Line Company, LP (PEPL) and its
subsidiaries (collectively Panhandle) and its 50
percent equity ownership interest in Florida Gas Transmission Company, LLC
(Florida Gas)
through Citrus Corp. (Citrus);
|
·
|
The
Gathering and Processing segment, which is primarily engaged in the
gathering, treating, processing and redelivery of natural gas and natural
gas liquids (NGLs) in Texas and New
Mexico. Its operations are conducted through Southern Union Gas
Services (SUGS);
and
|
·
|
The
Distribution segment, which is primarily engaged in the local distribution
of natural gas in Missouri and Massachusetts. Its
operations are conducted through Missouri Gas Energy and New England Gas
Company.
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
|||||||||
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
|||||||||
Panhandle
|
|||||||||||
PEPL
|
662 | 579 | 609 | ||||||||
Trunkline
|
648 | 486 | 459 | ||||||||
Sea
Robin
|
144 | 115 | 146 | ||||||||
Trunkline
LNG Usage Volumes
|
261 | 149 | 108 | ||||||||
Citrus and CCE
Holdings (1)
|
|||||||||||
Florida
Gas
|
751 | 737 | 699 | ||||||||
Transwestern
|
N/A | 572 | (2) | 589 | |||||||
(1)
|
Represents
100 percent of Transwestern and Florida Gas versus the Company's effective
equity ownership interest.
|
(2)
|
Represents transportation volumes
for Transwestern for the eleven-month period ended November 30,
2006.
|
As
of
|
||||
December 31, 2007
|
||||
Panhandle
|
||||
Approximate
Miles of Pipelines
|
||||
PEPL
|
6,000 | |||
Trunkline
|
3,500 | |||
Sea
Robin
|
400 | |||
Peak
Day Delivery Capacity (Bcf/d)
|
||||
PEPL
|
2.8 | |||
Trunkline
|
1.7 | |||
Sea
Robin
|
1.0 | |||
Trunkline
LNG
|
2.1 | |||
Trunkline
LNG Sustainable Send Out Capacity (Bcf/d)
|
1.8 | |||
Underground
Storage Capacity-Owned (Bcf)
|
74.4 | |||
Underground
Storage Capacity-Leased (Bcf)
|
19.9 | |||
Trunkline
LNG Terminal Storage Capacity (Bcf)
|
9.0 | |||
Average
Number of Transportation Customers
|
500 | |||
Weighted
Average Remaining Life in Years of Firm Transportation
Contracts
|
||||
PEPL
|
4.6 | |||
Trunkline
|
9.0 | |||
Sea
Robin (1)
|
N/A | |||
Weighted
Average Remaining Life in Years of Firm Storage Contracts
|
||||
PEPL
|
5.9 | |||
Trunkline
|
3.1 | |||
Florida Gas
(2)
|
||||
Approximate
Total Miles of Pipelines
|
5,000 | |||
Peak
Day Delivery Capacity (Bcf/d)
|
2.3 | |||
Average
Number of Transportation Customers
|
125 | |||
Weighted
Average Remaining Life of Firm Transportation Contracts
|
8.7 | |||
Percent
of
|
Weighted
|
||||||
Segment
Revenues
|
Average
Life
|
||||||
For
Year Ended
|
of
Contracts at
|
||||||
Customer
|
December
31, 2007 (1)
|
December
31, 2007
|
|||||
BG
LNG Services
|
28 | % |
16
years (LNG, transportation)
|
||||
ProLiance
|
11 |
5.2
years (transportation) 6.9 years (storage)
|
|
||||
Other
top 10 customers
|
26 |
N/A
|
|||||
Remaining
customers
|
35 |
N/A
|
|||||
Total
percentage
|
100 | % | |||||
(1)
|
Panhandle
has no single customer, or group of customers under common control, that
accounted for ten percent or more of the Company’s total consolidated
operating revenues.
|
Percent
of
|
|||||||||
Florida
Gas'
|
|||||||||
Total
Operating
|
Weighted
|
||||||||
Revenues
|
Average
Life
|
|
|||||||
For
Year Ended
|
of
Contracts at
|
|
|||||||
Customer
|
December
31, 2007 (1)
|
December
31, 2007
|
|
||||||
Florida
Power & Light
|
40 | % | 7.3 | Years |
|
||||
Tampa
Electric/Peoples Gas
|
16 | 9.6 | Years |
|
|||||
Other
top 10 customers
|
28 | N/A | |||||||
Remaining
customers
|
16 | N/A | |||||||
Total
percentage
|
100 | % | |||||||
(1)
|
The
Company accounts for its investment in Florida Gas through its equity
investment in Citrus using the equity method. Accordingly, it
reports its share of Florida Gas’ net earnings within Earnings from unconsolidated
investments in the Consolidated Statement of
Operations.
|
Date
of Last
|
||||
Company
|
Rate
Filing
|
Status
|
||
PEPL
|
May
1992
|
Settlement
effective April 1997
|
||
Trunkline
|
January
1996
|
Settlement
effective May 2001
|
||
Sea
Robin
|
June
2007
|
Ongoing;
procedural schedule currently suspended (1)
|
||
Trunkline
LNG
|
June
2001
|
Settlement
effective January 2002 (2)
|
||
Southwest
Gas Storage
|
August
2007
|
Settlement
approved February 2008
|
||
Florida
Gas
|
October
2003
|
Settlement
effective March 2005; rate moratorium in effect until October 2007;
required to file by October 2009
|
||
(1)
|
Filed
rates put into effect January 1, 2008, subject to
refund.
|
(2)
|
Settlement
provides for a rate moratorium through
2015.
|
|
·
|
field
gathering and compression of natural gas for delivery to its
plants;
|
|
·
|
treating,
dehydration, sulfur recovery and other conditioning;
and
|
|
·
|
natural
gas processing and marketing of
products.
|
Percent
of
|
Weighted
|
||||||
Segment
Revenues
|
Average
Life
|
||||||
For
Year Ended
|
of
Firm Contracts at
|
||||||
Customer
|
December
31, 2007
|
December
31, 2007
|
|||||
ConocoPhillips
Company (1)
|
16 | % |
Month-to-Month
|
||||
Other
top 10 customers
|
47 |
N/A
|
|||||
Remaining
customers
|
37 |
N/A
|
|||||
Total
percentage
|
100 | % | |||||
(1)
|
SUGS
has no single customer, or group of customers under common control, that
accounted for ten percent or more of the Company’s total consolidated
operating revenues.
|
|
·
|
Fee-Based. Under
fee-based arrangements, SUGS receives a fee or fees for one or more of the
following services: gathering, compressing, treating or
processing natural gas. The fee or fees are usually based on
the volume or level of service provided to gather, compress, treat or
process natural gas. While fee-based arrangements are generally
not subject to commodity risk, certain operating conditions as well as
provisions of these arrangements, including fuel recovery mechanisms, may
subject SUGS to a limited amount of commodity
risk.
|
|
·
|
Percent-of-Proceeds, Percent-of-Value
or Percent-of-Liquids. Under percent-of-proceeds
arrangements, SUGS generally gathers and processes natural gas from
producers for an agreed percentage of the proceeds from the sales of the
resulting residue gas and NGLs. The percent-of-value and
percent-of-liquids are variations on this arrangement. These
types of arrangements expose SUGS to some commodity price risk as the
costs and revenues from the contracts are directly correlated with the
price of natural gas and NGLs.
|
|
·
|
Conditioning
Fee. Conditioning fee arrangements provide a guaranteed
minimum margin or fee on gas that must be processed for liquid hydrocarbon
extraction in order to meet the quality specifications of the transmission
pipelines. In addition to the minimum margin or fee, SUGS keeps
all or a large percentage of the value of the NGLs. The revenue
earned is directly related to the processing value of the gas, however,
SUGS is kept whole on a minimum value or fee in low processing spread
environments.
|
|
·
|
Keep-Whole
and Wellhead. A keep-whole arrangement allows SUGS to
keep 100 percent of the NGLs produced and requires the return of the
processed natural gas, or value of the gas, to the producer or
owner. Since some of the gas is used during processing, SUGS
must compensate the producer or owner for the gas shrink entailed in
processing by supplying additional gas or by paying an agreed value for
the gas utilized. These arrangements have the highest commodity
price exposure for SUGS because the costs are dependent on the price of
natural gas and the revenues are based on the price of NGLs. As
a result, SUGS benefits from these types of arrangements when the value of
the NGLs is high relative to the cost of the natural gas and is
disadvantaged when the cost of the natural gas is high relative to the
value of NGLs. SUGS has the ability to eliminate its exposure
to negative processing spreads by treating, dehydrating and blending the
wellhead gas with leaner gas in order to meet downstream transmission
pipeline specifications rather than processing the gas. In
situations where the negative processing spread is eliminated, such
contracts are referred to as wellhead
contracts.
|
|
·
|
contract
fees charged,
|
|
·
|
pressures
maintained on the gathering
systems,
|
|
·
|
location
of the gathering systems relative to competitors and producer drilling
activity,
|
|
·
|
efficiency
and reliability of the operations,
and
|
|
·
|
delivery
capabilities in each system and plant
location.
|
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
Average
number of customers:
|
||||||||||||
Residential
|
483,753 | 482,882 | 480,381 | |||||||||
Commercial
|
66,631 | 67,120 | 66,608 | |||||||||
Industrial
|
122 | 129 | 142 | |||||||||
Total
average customers served
|
550,506 | 550,131 | 547,131 | |||||||||
Transportation
customers
|
1,517 | 1,473 | 1,383 | |||||||||
Total
average gas sales and transportation customers
|
552,023 | 551,604 | 548,514 | |||||||||
Gas
sales (MMcf):
|
||||||||||||
Residential
|
37,916 | 34,946 | 39,160 | |||||||||
Commercial
|
15,988 | 14,938 | 16,633 | |||||||||
Industrial
|
504 | 517 | 525 | |||||||||
Gas
sales billed
|
54,408 | 50,401 | 56,318 | |||||||||
Net
change in unbilled gas sales
|
1,788 | (1,025 | ) | 185 | ||||||||
Total
gas sales
|
56,196 | 49,376 | 56,503 | |||||||||
Gas
transported
|
26,911 | 26,340 | 27,609 | |||||||||
Total
gas sales and gas transported
|
83,107 | 75,716 | 84,112 | |||||||||
Gas
sales revenues ($ in thousands):
|
||||||||||||
Residential
|
$ | 495,464 | $ | 472,926 | $ | 500,874 | ||||||
Commercial
|
186,987 | 189,837 | 201,122 | |||||||||
Industrial
|
10,900 | 11,140 | 10,499 | |||||||||
Gas
revenues billed
|
693,351 | 673,903 | 712,495 | |||||||||
Net
change in unbilled gas sales revenues
|
9,491 | (25,681 | ) | 19,561 | ||||||||
Total
gas sales revenues
|
702,842 | 648,222 | 732,056 | |||||||||
Gas
transportation revenues
|
12,669 | 12,253 | 12,885 | |||||||||
Other
revenues
|
16,598 | 8,246 | 7,758 | |||||||||
Total
operating revenues
|
$ | 732,109 | $ | 668,721 | $ | 752,699 | ||||||
Weather:
|
||||||||||||
Massachusetts
Utility Operations:
|
||||||||||||
Degree
days (1)
|
5,371 | 4,901 | 5,801 | |||||||||
Percent
of 10-year measure (2)
|
86 | % | 90 | % | 106 | % | ||||||
Percent
of 30-year measure (2)
|
89 | % | 85 | % | 101 | % | ||||||
Missouri
Utility Operations:
|
||||||||||||
Degree
days (1)
|
4,776 | 3,996 | 4,621 | |||||||||
Percent
of 10-year measure (2)
|
92 | % | 77 | % | 89 | % | ||||||
Percent
of 30-year measure (2)
|
92 | % | 77 | % | 89 | % | ||||||
Date
of Last
|
|||||
Utility
Operations
|
Rate
Filing
|
Status
(1)
|
|||
Missouri
|
May
2006
|
MPSC
rate order effective April 2007.
|
|||
Massachusetts
|
June
2007
|
Settlement
effective August 2007.
|
|||
(1)
|
For
more information related to these rate filings, see Item 8. Financial
Statements and Supplementary Data, Note 16 – Regulation and
Rates.
|
Number
of employees
|
Expiration
of
|
|||
Company
|
Represented
by Unions
|
Current
Contract
|
||
PEPL
|
||||
USW
Local 348
|
215
|
May
27, 2009
|
||
|
||||
Missouri
Gas Energy
|
||||
Gas
Workers 781
|
195
|
April
30, 2009
|
||
IBEW
Local 53
|
98
|
April
30, 2009
|
||
USW
Local 5-267
|
27
|
April
30, 2009
|
||
USW
Local 12561, 14228
|
142
|
April
30, 2009
|
||
New
England Gas Company
|
||||
UWUA
Local 431
|
72
|
April
30, 2010
|
||
|
·
|
examine
and potentially acquire regulated or unregulated businesses, including
transportation and storage assets and gathering and processing businesses
within the natural gas industry;
|
|
·
|
enter
into joint venture agreements and/or other transactions with other
industry participants or financial
investors;
|
|
·
|
selectively
divest parts of its business, including parts of its core operations;
and
|
|
·
|
continue
expanding its existing operations.
|
|
·
|
its
success in bidding for the
opportunities;
|
|
·
|
its
ability to assess the risks of the
opportunities;
|
|
·
|
its
ability to obtain regulatory approvals on favorable terms;
and
|
|
·
|
its
access to financing on acceptable
terms.
|
|
·
|
the
risk of diverting management's attention from day-to-day
operations;
|
|
·
|
the
risk that the acquired businesses will require substantial capital and
financial investments;
|
|
·
|
the
risk that the investments will fail to perform in accordance with
expectations; and
|
|
·
|
the
risk of substantial difficulties in the transition and integration
process.
|
·
|
the
impact of seasonality and weather;
|
·
|
general
economic conditions;
|
·
|
the
level of domestic crude oil and natural gas production and
consumption;
|
·
|
the
availability of imported natural gas, NGLs and crude
oil;
|
·
|
actions
taken by foreign oil and gas producing
nations;
|
·
|
the
availability of local, intrastate and interstate transportation
systems;
|
·
|
the
availability of natural gas liquids transportation and fractionation
capacity;
|
·
|
the
availability and marketing of competitive
fuels;
|
·
|
the
impact of energy conservation efforts;
and
|
·
|
the
extent of governmental regulation and
taxation.
|
|
·
|
changes
in demand for natural gas by the Company’s customers, the composition of
the Company’s customer base and in the sources of natural gas available to
the Company;
|
|
·
|
the
effects of inflation and the timing and extent of changes in the prices
and overall demand for and availability of natural gas or natural gas
liquid products as well as electricity, oil, coal and other bulk materials
and chemicals;
|
|
·
|
adverse
weather conditions, such as warmer than normal weather in the Company’s
service territories, and the operational impact of natural
disasters;
|
|
·
|
changes
in laws or regulations, third-party relations and approvals, decisions of
courts, regulators and governmental bodies affecting or involving Southern
Union, including deregulation initiatives and the impact of rate and
tariff proceedings before FERC and various state regulatory
commissions;
|
|
·
|
the
speed and degree to which additional competition is introduced to Southern
Union’s business and the resulting effect on
revenues;
|
|
·
|
the
outcome of pending and future
litigation;
|
|
·
|
the
Company’s ability to comply with or to challenge successfully existing or
new environmental regulations;
|
|
·
|
unanticipated
environmental liabilities;
|
|
·
|
The
Company’s increased exposure to highly competitive commodity businesses
through its Gathering and Processing
segment;
|
|
·
|
the
Company’s ability to acquire new businesses and assets and integrate those
operations into its existing operations, as well as its ability to expand
its existing businesses and
facilities;
|
|
·
|
the
Company’s ability to control costs successfully and achieve operating
efficiencies, including the purchase and implementation of new
technologies for achieving such
efficiencies;
|
|
·
|
the
impact of factors affecting operations such as maintenance or repairs,
environmental incidents, gas pipeline system constraints and relations
with labor unions representing bargaining-unit
employees;
|
|
·
|
exposure
to customer concentration with a significant portion of revenues realized
from a relatively small number of customers and any credit risks
associated with the financial position of those
customers;
|
|
·
|
changes
in the ratings of the debt securities of Southern Union or any of its
subsidiaries;
|
|
·
|
changes
in interest rates and other general capital markets conditions, and in the
Company’s ability to continue to access the capital
markets;
|
|
·
|
acts
of nature, sabotage, terrorism or other acts causing damage greater than
the Company’s insurance coverage
limits;
|
|
·
|
market
risks beyond the Company’s control affecting its risk management
activities including market liquidity, commodity price volatility and
counterparty creditworthiness; and
|
|
·
|
other
risks and unforeseen events.
|
Dollars
per share
|
||||||||||||
High
|
Low
|
Dividends
|
||||||||||
(Quarter
Ended)
|
||||||||||||
December
31, 2007
|
$ | 33.01 | $ | 28.46 | $ | 0.15 | ||||||
September
30, 2007
|
35.05 | 27.20 | 0.10 | |||||||||
June
30, 2007
|
35.50 | 30.35 | 0.10 | |||||||||
March
31, 2007
|
30.50 | 26.81 | 0.10 | |||||||||
(Quarter
Ended)
|
||||||||||||
December
31, 2006
|
$ | 29.76 | $ | 26.19 | $ | 0.10 | ||||||
September
30, 2006
|
27.75 | 25.83 | 0.10 | |||||||||
June
30, 2006
|
27.22 | 22.76 | 0.10 | |||||||||
March
31, 2006
|
25.55 | 22.90 | 0.10 | |||||||||
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
||
Southern
Union
|
100
|
117
|
160
|
166
|
199
|
212
|
|
S&P
500 Index
|
100
|
129
|
143
|
150
|
173
|
183
|
|
Bloomberg
U.S. Pipeline Index
|
100
|
164
|
209
|
270
|
305
|
353
|
|
Number
of Securities
|
Number
of Securities
|
|||||
to
Be issued Upon
|
Weighted-Average
|
Remaining
Available for
|
||||
Exercise
of
|
Exercise
Price of
|
Future
Issuance Under
|
||||
Plan Category
|
Outstanding Options/SARs
|
Outstanding Options/SARs
|
Equity Compensation
Plans
|
|||
Plans
approved by stockholders
|
2,076,836
|
(1)
|
$22.87
|
6,304,479
|
For
the
|
|||||||||||||||||||||||||
For
the years ended
|
|
six
months ended
|
For
the years ended
|
||||||||||||||||||||||
December
31,
|
December
31,
|
June
30,
|
|||||||||||||||||||||||
2007
|
2006 (1)
|
2005
|
2004 (2)
|
2004
|
2003
(3)
|
||||||||||||||||||||
(In
thousands of dollars, except per share amounts)
|
|||||||||||||||||||||||||
Total
operating revenues
|
$ | 2,616,665 | $ | 2,340,144 | $ | 1,266,882 | $ | 517,849 | $ | 1,149,268 | $ | 596,330 | |||||||||||||
Earnings
from unconsolidated
|
|||||||||||||||||||||||||
investments
|
100,914 | 141,370 | 70,742 | 4,745 | 200 | 422 | |||||||||||||||||||
Net
earnings (loss):
|
|||||||||||||||||||||||||
Continuing
operations (4)
|
211,346 | 199,718 | 135,731 | (1,635 | ) | 51,729 | (12,425 | ) | |||||||||||||||||
Discontinued
operations (5)
|
- | (152,952 | ) | (132,413 | ) | 7,723 | 49,610 | 88,614 | |||||||||||||||||
Available
for common stockholders
|
211,346 | 46,766 | 3,318 | 6,088 | 101,339 | 76,189 | |||||||||||||||||||
Net
earnings (loss) per diluted
|
|||||||||||||||||||||||||
common
share (6):
|
|||||||||||||||||||||||||
Continuing
operations
|
1.75 | 1.70 | 1.20 | (0.02 | ) | 0.63 | (0.19 | ) |
|
||||||||||||||||
Discontinued
operations
|
- | (1.30 | ) | (1.17 | ) | 0.09 | 0.61 | 1.36 |
|
||||||||||||||||
Available
for common stockholders
|
1.75 | 0.40 | 0.03 | 0.07 | 1.24 | 1.17 | |||||||||||||||||||
Total
assets
|
7,397,913 | 6,782,790 | 5,836,819 | 5,568,289 | 4,572,458 | 4,590,938 | |||||||||||||||||||
Stockholders’
equity
|
2,205,806 | 2,050,408 | 1,854,069 | 1,497,557 | 1,261,991 | 920,418 | |||||||||||||||||||
Current
portion of long-term debt and
|
|||||||||||||||||||||||||
capital
lease obligation
|
434,680 | 461,011 | 126,648 | 89,650 | 99,997 | 734,752 | |||||||||||||||||||
Long-term
debt and capital lease
|
|||||||||||||||||||||||||
obligation,
excluding current portion
|
2,960,326 | 2,689,656 | 2,049,141 | 2,070,353 | 2,154,615 | 1,611,653 | |||||||||||||||||||
Company-obligated
mandatorily
|
|||||||||||||||||||||||||
redeemable
preferred securities
|
|||||||||||||||||||||||||
of
subsidiary trust
|
- | - | - | - | - | 100,000 | |||||||||||||||||||
Cash
dividends declared on common
|
|||||||||||||||||||||||||
stock
(7)
|
53,968 | 46,289 | - | - | - | - | |||||||||||||||||||
(1)
|
Includes
the impact of significant acquisitions and sales of assets. See
Item
8. Financial Statements and Supplementary Data, Note 3 –
Acquisitions and Sales and Item 8. Financial
Statements and Supplementary Data, Note 19 – Discontinued Operations
for information related to the acquisitions and
sales.
|
(2)
|
The
Company’s investment in CCE Holdings, which was accounted for using the
equity method, was included in the Company’s Consolidated Balance Sheet at
December 31, 2004. The Company’s share of net income from CCE
Holdings was recorded as Earnings from unconsolidated
investments in the Company’s Consolidated Statement of Operations
since its acquisition on November 17, 2004. For these reasons,
the Consolidated Statement of Operations for the periods subsequent to
such acquisition is not comparable to the year of
acquisition.
|
(3)
|
Panhandle
was acquired on June 11, 2003 and was accounted for as a
purchase. The Panhandle assets were included in the Company's
Consolidated Balance Sheet at June 30, 2003 and its results of operations
have been included in the Company's Consolidated Statement of Operations
since its acquisition on June 11, 2003. For these reasons, the
Consolidated Statement of Operations for the periods subsequent to such
acquisition is not comparable to the year of
acquisition.
|
(4)
|
Net
earnings from continuing operations are net of dividends on preferred
stock of $17.4 million, $17.4 million, $17.4 million, $8.7 million and
$12.7 million for the years ended December 31, 2007, 2006 and
|
(5)
|
On
August 24, 2006, the Company completed the sales of the assets of its PG
Energy natural gas distribution division to UGI Corporation and the Rhode
Island operations of its New England Gas Company natural gas distribution
division to National Grid USA. On January 1, 2003, ONEOK
acquired the Company’s Southern Union Gas natural gas operating division
and related assets. These dispositions were
accounted for as discontinued operations in the Consolidated Statement of
Operations. For additional related information, see Item 8. Financial Statements
and Supplementary Data, Note 19 – Discontinued
Operations.
|
(6)
|
Earnings
per share for all periods presented were computed based on the weighted
average number of shares of common stock and common stock equivalents
outstanding during the period, adjusted for the five percent stock
dividends distributed on September 1, 2005, August 31, 2004, July 31, 2003
and July 15, 2002.
|
(7)
|
No
cash dividends on common stock were paid during the reporting periods
prior to 2006. See Item 5. Market for
Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities and Item 8. Financial
Statements and Supplementary Data, Note 10 – Stockholders’ Equity –
Dividends.
|
·
|
Expanding through development
of the Company’s existing businesses. The Company will
continue to pursue growth opportunities through the expansion of its
existing asset base, while maintaining its focus on providing safe and
reliable service to its customers. In each of its business
segments, the Company identifies opportunities for organic growth through
incremental volumes and system enhancements to generate operating
efficiencies. In its interstate transmission and distribution
businesses, the Company seeks rate increases and/or improved rate design
as appropriate to achieve a fair return on its investment. See
Item
7. Management’s Discussion and Analysis of Financial Condition
and Results of Operations – Liquidity and Capital Resources – Investing
Activities for information related to the Company’s principal
capital expenditure projects. See Item
8. Financial Statements and Supplementary Data, Note 16 –
Regulation and Rates for information related to ratemaking
activities.
|
·
|
New
initiatives. The Company regularly
assesses strategies to enhance stockholder value,
including diversification of earning
sources through strategic acquisitions or joint ventures in
the diversified natural gas
industry.
|
·
|
Disciplined capital
expenditures and cost containment programs. The Company
will continue to focus on system optimization and cost savings while
making prudent capital expenditures across its base of energy
infrastructure assets.
|
|
·
|
items
that do not impact net earnings from continuing operations, such as
extraordinary items, discontinued operations and the impact of changes in
accounting principles;
|
|
·
|
income
taxes;
|
|
·
|
interest;
and
|
|
·
|
dividends
on preferred stock.
|
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
EBIT:
|
||||||||||||
Transportation
and storage segment
|
$ | 391,029 | $ | 417,536 | $ | 281,344 | ||||||
Gathering
and processing segment
|
65,368 | 62,630 | - | |||||||||
Distribution
segment
|
70,568 | 41,883 | 61,698 | |||||||||
Corporate
and other
|
151 | 14,324 | (11,424 | ) | ||||||||
Total
EBIT
|
527,116 | 536,373 | 331,618 | |||||||||
Interest
expense
|
203,146 | 210,043 | 128,470 | |||||||||
Earnings
from continuing operations before
|
||||||||||||
income
taxes
|
323,970 | 326,330 | 203,148 | |||||||||
Federal
and state income taxes
|
95,259 | 109,247 | 50,052 | |||||||||
Earnings
from continuing operations
|
228,711 | 217,083 | 153,096 | |||||||||
Discontinued
operations:
|
||||||||||||
Loss
from discontinued operations
|
||||||||||||
before
income taxes
|
- | (2,369 | ) | (111,588 | ) | |||||||
Federal
and state income taxes
|
- | 150,583 | 20,825 | |||||||||
Loss
from discontinued operations
|
- | (152,952 | ) | (132,413 | ) | |||||||
Preferred
stock dividends
|
17,365 | 17,365 | 17,365 | |||||||||
Net
earnings available for common stockholders
|
$ | 211,346 | $ | 46,766 | $ | 3,318 | ||||||
|
·
|
Impact
of the $153 million loss from discontinued operations in the 2006 period
associated with the August 2006 sales of the assets of the Company’s PG
Energy natural gas distribution division and the Rhode Island operations
of its New England Gas Company natural gas distribution
division;
|
|
·
|
Higher
EBIT contributions of $28.7 million from the Distribution segment
primarily due to higher net operating revenue resulting from the Missouri
Gas Energy rate increase effective April 3, 2007 eliminating the impact of
weather and conservation for residential margin
revenues;
|
|
·
|
Lower
interest expense of $6.9 million primarily due to the retirement of debt
in 2006 associated with the bridge loan facility entered into to finance
the acquisition of the Sid Richardson Energy Services business, partially
offset by increased interest expense related to the $600 million Junior
Subordinated Notes issued in October 2006 and higher interest expense on
Panhandle debt primarily due to higher debt balances;
and
|
|
·
|
Lower
income tax expense from continuing operations of $14 million primarily due
to the lower federal and state effective income tax rate (EITR) of 29 percent in
the 2007 period versus 33 percent in the 2006 period primarily due to the
tax benefit associated with the increase in the dividends received
deduction as a result of increased dividends from the Company’s
unconsolidated investment in
Citrus.
|
|
·
|
Lower
EBIT contributions of $26.5 million from the Transportation and Storage
segment largely due to the gain on CCE Holdings’ exchange of Transwestern
in 2006, partially offset by higher LNG terminalling revenue associated
with the Trunkline LNG Phase I and Phase II expansions completed in April
2006 and July 2006, respectively, higher pipeline reservation revenues
driven by higher average rates on contracts, higher parking revenues and
higher equity earnings from Citrus resulting from the Company’s increased
equity ownership in Citrus from 25 percent to 50 percent effective
December 1, 2006; and
|
|
·
|
Impact
of the pre-acquisition pre-tax mark-to-market gain of $37.2 million in the
2006 period on the put options associated with the acquisition of the Sid
Richardson Energy Services business, partially offset by $12.8 million of
executive bonus compensation awarded and paid in
2006.
|
Years
Ended December 31,
|
||||||||||||
Transportation
and Storage Segment
|
2007
|
2006
|
2005
|
|||||||||
(In
thousands)
|
||||||||||||
Operating
revenues
|
$ | 658,446 | $ | 577,182 | $ | 505,233 | ||||||
Operating
expenses
|
252,903 | 206,181 | 204,711 | |||||||||
Depreciation
and amortization
|
85,641 | 72,724 | 62,171 | |||||||||
Taxes
other than on income
|
||||||||||||
and
revenues
|
29,699 | 25,405 | 28,196 | |||||||||
Total
operating income
|
290,203 | 272,872 | 210,155 | |||||||||
Earnings
from unconsolidated
|
||||||||||||
investments
|
99,222 | 141,310 | 70,618 | |||||||||
Other
income, net
|
1,604 | 3,354 | 571 | |||||||||
EBIT
|
$ | 391,029 | $ | 417,536 | $ | 281,344 | ||||||
Operating
information:
|
||||||||||||
Panhandle
natural gas volumes transported
|
||||||||||||
(in
trillion British thermal units (TBtu))
|
1,454 | 1,180 | 1,214 | |||||||||
CCE
Holdings natural gas volumes transported (TBtu) (1)
|
||||||||||||
Florida
Gas
|
751 | 737 | 699 | |||||||||
Transwestern
|
- | 572 | 589 | |||||||||
(1)
|
Represents
100 percent of Florida Gas and Transwestern natural gas volumes
transported versus the Company’s effective equity ownership
interests. The Company’s effective equity ownership interests
in Florida Gas and Transwestern were 25 percent and 50 percent,
respectively, until December 1, 2006, when the Company’s indirect interest
in Transwestern was transferred to Energy Transfer, increasing the
Company’s effective indirect ownership interest in Florida Gas to 50
percent.
|
·
|
Higher
operating revenues of $81.3 million as the result
of:
|
·
|
Increased
transportation and storage revenue of $59.8 million attributable
to:
|
|
o
|
Higher
transportation reservation revenues of $27.4 million primarily due to
reduced discounting resulting in higher average rates realized on
contracts driven by higher customer demand and utilization of contract
capacity;
|
|
o
|
Higher
parking revenues of $18 million resulting from customer demand for parking
services and market conditions;
|
|
o
|
Higher
storage revenues of $7.8 million due to increased contracted capacity;
and
|
|
o
|
Higher
other commodity revenues of $6.5 million due to higher throughput volumes
including transportation of higher LNG volumes on Trunkline, higher
volumes on Sea Robin due to adverse hurricane impacts on 2006 throughput,
and higher throughput on Panhandle due to storage refill
activity.
|
·
|
A
$23.6 million increase in LNG terminalling revenue based on a capacity
increase on the BG LNG Services contract as a result of the Trunkline LNG
Phase I and Phase II expansions, which were placed in service in April
2006 and July 2006, respectively, as well as higher volumes resulting from
an increase in LNG cargoes; and
|
·
|
A
decrease in other revenue of $2.2 million primarily due to higher
operational sales of gas in 2006.
|
·
|
Higher
operating expenses of $46.7 million as the result
of:
|
|
o
|
A
$15.6 million increase in corporate services costs relating to Southern
Union’s disposition of certain assets during 2006, resulting in a larger
allocation of corporate services costs to the remaining business
units;
|
|
o
|
A
$13.1 million increase in contract storage costs attributable to an
increase in leased capacity;
|
|
o
|
A
$6.2 million increase in LNG power costs resulting from increased
cargoes;
|
|
o
|
A
$3.4 million increase in fuel tracker costs primarily due to a net
under-recovery in 2007;
|
|
o
|
A
$2.4 million net increase in labor and benefits primarily due to incentive
and merit increases; and
|
|
o
|
A
$1.8 million increase in insurance due to higher
premiums.
|
·
|
Increased
depreciation and amortization expense of $12.9 million due to a $411.2
million increase in property, plant and equipment placed in service in
2007. Depreciation and amortization expense is expected to
continue to increase primarily due to higher capital spending, including
compression modernization and other expenditures;
and
|
·
|
Higher taxes other than on income
of $4.3 million primarily due to a $2.8 million refund received in 2006
for franchise and sales taxes and higher property and compressor fuel
taxes in 2007.
|
·
|
$74.8
million nonrecurring gain in 2006 resulting from the transfer of
Transwestern to Energy Transfer in December 2006 in connection with the
redemption of Energy Transfer’s interest in CCE Holdings pursuant to the
Redemption Agreement;
|
·
|
$28
million of earnings in 2006 attributable to
Transwestern;
|
·
|
Higher
equity earnings of approximately $42 million from Citrus’ core business
largely due to the increase in the Company’s effective ownership from 25
percent to 50 percent as a result of the transactions under the Redemption
Agreement, which closed in December
2006;
|
·
|
A
$7.6 million gain in 2007 related to a reduction in a previously
established liability to Enron associated with the Duke
lawsuit;
|
·
|
A
gain of $7.5 million recognized by Citrus in 2007 associated with
settlement of the Duke lawsuit; and
|
·
|
A
$3.6 million gain in 2007 related to the sale of Enron bankruptcy claim
receivables.
|
·
|
Higher
operating revenues of $71.9 million primarily due
to:
|
|
o
|
A
$49.3 million increase in LNG terminalling revenue primarily due to
expanded vaporization capacity, a base capacity increase on the BG LNG
Services contract and higher volumes resulting from an increase in LNG
cargoes;
|
|
o
|
Increased
transportation and storage revenue of $17 million due to higher
reservation revenues of $15.6 million, which were primarily driven by
higher average rates on contracts, higher parking revenues of $1.6 million
and higher storage revenues of $4.7 million due to increased contracted
capacity. These increases were partially offset by lower usage
revenues of $4.9 million, of which $3.1 million resulted from the 2006
impact on Sea Robin in 2006 of the hurricanes that occurred in the third
quarter of 2005 and $1.8 million resulted from lower overall capacity
utilization at Trunkline; and
|
|
o
|
Increased
other revenue of $5.7 million primarily due to $3.7 million of
non-recurring operational sales of gas in 2006 and $1.1 million of higher
liquids revenue.
|
·
|
Higher
operating expenses of $1.5 million primarily due
to:
|
|
o
|
Approximately
$3.2 million of higher pipeline integrity assessment
costs;
|
|
o
|
Approximately
$1.6 million of higher maintenance project
costs;
|
|
o
|
$1.3
million for 2006 inspections of facilities due to Hurricane
Rita;
|
|
o
|
$2.1
million of higher LNG fuel and electric power tracker costs associated
with greater LNG cargo activity;
|
|
o
|
A
$3.8 million nonrecurring adjustment in 2005 for lower vacation accruals
due to a change in vacation pay practice;
and
|
|
o
|
Favorable
offsetting impact of a $9.7 million decrease in insurance related costs
due to accrued losses recorded in 2005 associated with the hurricanes and
lower 2006 premiums and a $4.4 million decrease in benefit costs primarily
related to lower postretirement benefit expenses including the impact of
enactment of Medicare Part D reimbursements and benefit plan
changes;
|
·
|
Increased
depreciation and amortization expense of $10.6 million due to an increase
in property, plant and equipment placed in service in 2006, including the
Trunkline LNG Phase I and Phase II
expansions;
|
·
|
Favorable
offsetting impact of decreased taxes other than on income of $2.8 million
primarily due to refunds of franchise and sales taxes received in 2006;
and
|
·
|
Favorable
offsetting impact of a $2.8 million increase in other income, net
primarily due to a gain on sale of certain Trunkline assets in
2006.
|
·
|
A
nonrecurring gain of $74.8 million resulting from the transfer of
Transwestern pursuant to the Redemption Agreement in
2006;
|
·
|
Higher
earnings from Florida Gas of $5.5 million, $2.8 million of which related
to the December 2006 incremental earnings resulting from the Company’s
additional 25 percent indirect ownership interest in Florida Gas as a
result of the transactions under the Redemption
Agreement;
|
·
|
Lower
earnings from discontinued operations of $10.6 million (adjusted to
reflect the Company’s 50 percent share) related to Transwestern primarily
due to:
|
|
o
|
Lower
net revenues of $4.8 million primarily related to the $8 million impact of
a decrease in transportation volumes associated with the replacement of
expired contracts at discounted rates, partially offset by $3.2 million of
increased operational gas sales
revenue;
|
|
o
|
Higher
operating expense of $5.5 million primarily related to higher system
balancing expenses of $3.7 million and $2 million of higher electricity
costs due to the addition of San Juan
compression;
|
|
o
|
A
decrease of $1.9 million in net earnings attributable to Transwestern
because 2006 contained only eleven months versus a full year of operations
in 2005 due to the redemption of Transwestern on December 1, 2006;
and
|
|
o
|
Favorable
offsetting impact of lower depreciation expense of $2.4 million due to the
cessation of depreciation on Transwestern following the execution of the
Redemption Agreement with Energy
Transfer.
|
Years
Ended December 31,
|
||||||||
Gathering
and Processing Segment
|
2007
|
2006 (1)
|
||||||
Gross
margin (2)
|
$ | 210,780 | $ | 172,152 | ||||
Operating
expenses
|
84,550 | 61,428 | ||||||
Depreciation
and amortization
|
59,560 | 47,321 | ||||||
Taxes
other than on income and revenues
|
2,742 | 2,156 | ||||||
Total
operating income
|
63,928 | 61,247 | ||||||
Earnings
(loss) from unconsolidated investments
|
1,300 | (188 | ) | |||||
Other
income, net
|
140 | 1,571 | ||||||
EBIT
|
$ | 65,368 | $ | 62,630 | ||||
Operating
Statistics:
|
||||||||
Volumes
|
||||||||
Avg
natural gas processed (MMBtu/d)
|
426,097 | 451,675 | ||||||
Avg
NGLs produced (gallons/d)
|
1,337,450 | 1,423,138 | ||||||
Avg
natural gas wellhead (MMBtu/d)
|
637,794 | 585,185 | ||||||
Natural
gas sales (MMBtu)
|
105,677,108 | 113,362,236 | ||||||
NGLs
sales (gallons)
|
469,907,600 | 421,896,247 | ||||||
Average
Pricing
|
||||||||
Realized
natural gas ($/MMBtu)
|
$ | 6.26 | $ | 5.83 | ||||
Realized
NGLs ($/gallon)
|
1.13 | 0.97 | ||||||
Natural
Gas Daily WAHA ($/MMBtu)
|
6.35 | 5.78 | ||||||
Natural
Gas Daily El Paso ($/MMBtu)
|
6.20 | 5.68 | ||||||
Estimated
plant processing spread ($/gallon)
|
0.55 | 0.43 | ||||||
(2)
|
Gross
margin consists of Operating revenues less
Cost of gas and other
energy. The Company believes that this measurement is
more meaningful for understanding and analyzing the Gathering and
Processing segment’s operating results for the periods presented because
commodity costs are a significant factor in the determination of the
segment’s revenues.
|
·
|
Gross
margin was higher by $38.6 million primarily due
to:
|
|
o
|
Realization
of operating results for the complete twelve-month period in 2007 versus
ten months in the 2006 period;
|
|
o
|
Favorable
impact of market-driven higher average realized natural gas and NGLs
prices of $6.26 per MMBtu and $1.13 per gallon in the 2007 period versus
$5.83 per MMBtu and $0.97 per gallon in the 2006 period, respectively;
and
|
|
o
|
Higher
producer fee revenues of $5 million primarily due to increased volumes
from the Atoka producing region associated with the Company’s Mi Vida
system.
|
·
|
Operating
expenses were higher by $23.1 million primarily due
to:
|
|
o
|
Incurrence
of twelve months of activity in the 2007 period versus ten months in the
2006 period;
|
|
o
|
A
$4.9 million increase in corporate services costs relating to Southern
Union’s disposition of certain assets during 2006, resulting in a larger
allocation of corporate services costs to the remaining business units;
and
|
|
o
|
Increases
in operating costs such as employee labor and benefit costs and contractor
services costs resulting from competitive forces within the midstream
energy industry, as well as higher costs incurred for chemical and
lubricant petroleum products used in SUGS’ gathering and processing
operations;
|
·
|
Depreciation
and amortization expense was higher by $12.2 million primarily due to the
incurrence of twelve months of activity in the 2007 period versus ten
months in the 2006 period and a $57.5 million increase in property, plant
and equipment placed in service in
2007;
|
·
|
Earnings
(loss) from unconsolidated investments increased by $1.5 million primarily
due to the Company’s proportionate equity share of $463,000 related to a
settlement with a producer for damages incurred from sour gas delivered
into the Grey Ranch facility and the benefit derived from improved
operating efficiencies realized at the Grey Ranch facility;
and
|
·
|
Other
income, net decreased by $1.4 million primarily due to approximately
$911,000 of lower interest income resulting from higher available cash
balances for investment purposes in the 2006 period versus the 2007
period, principally due to the $53.7 million of cash on hand at the March
1, 2006 acquisition date.
|
|
·
|
Processing
plant outages;
|
|
·
|
Higher
than anticipated FF&U efficiency
levels;
|
|
·
|
Impact
of commodity prices in general;
|
|
·
|
Lower
than expected recovery of NGLs from the residue gas stream;
and
|
|
·
|
Lower
than expected recovery of natural gas volumes to be
processed.
|
Years
Ended December 31,
|
||||||||||||
Distribution
Segment
|
2007
|
2006
|
2005
|
|||||||||
(In
thousands)
|
||||||||||||
Net
operating revenues (1)
|
$ | 222,097 | $ | 174,584 | $ | 184,257 | ||||||
Operating
expenses
|
108,788 | 90,178 | 87,306 | |||||||||
Depreciation
and amortization
|
30,251 | 30,353 | 29,447 | |||||||||
Taxes
other than on income
|
||||||||||||
and
revenues
|
10,588 | 10,040 | 3,208 | |||||||||
Total
operating income
|
72,470 | 44,013 | 64,296 | |||||||||
Other
income (expenses), net
|
(1,902 | ) | (2,130 | ) | (2,598 | ) | ||||||
EBIT
|
$ | 70,568 | $ | 41,883 | $ | 61,698 | ||||||
(1) Operating
revenues for the Distribution segment are reported net of Cost
|
||
of gas and other energy and
Revenue-related
taxes, which are both pass-through
costs.
|
·
|
Net
operating revenues increased $47.5 million primarily due to the Missouri
Gas Energy $27.2 million annual revenue rate increase effective April 3,
2007 and higher consumption volumes resulting from colder weather in 2007
versus 2006 as evidenced by a 13.8 percent increase in consumption volumes
and a 14 percent increase in degree
days;
|
·
|
The
net operating revenues increase was partially offset by higher operating
expenses of $18.6 million in the 2007 period versus the 2006 period
primarily due to:
|
|
o
|
Increased
benefit costs of approximately $7.1 million primarily due
to higher pension costs resulting from the recent Missouri Gas
Energy rate case;
|
|
o
|
Increased
general expenses of approximately $4.5 million primarily due to cathodic
protection maintenance, the establishment of a customer education program
for energy efficiency associated with the 2007 rate case and other
costs;
|
|
o
|
Increased
labor expenses of approximately $5.5 million primarily due to the filling
of vacant positions and incentive and merit increases in 2007 versus
2006;
|
|
o
|
Higher
uncollectible accounts of approximately $1.8 million resulting primarily
from higher revenues realized in the 2007 period versus the 2006
period.
|
·
|
Net
operating revenues were $9.7 million lower primarily due to a 12.6 percent
reduction in consumption volumes resulting from the warmer than normal
weather, as evidenced by a 15 percent reduction in degree
days;
|
·
|
Higher
taxes other than on income and revenues of $6.8 million primarily due to
refunds received for Missouri property tax settlements in 2005;
and
|
·
|
Higher
operating expenses of $2.9 million primarily due to higher bad debt
expenses of $900,000 due to the residual effects of higher gas prices in
the 2005 to 2006 winter season and higher general expenses in 2006 of $1.3
million primarily due to higher corrosion control costs resulting from
drier weather in 2006 compared to
2005.
|
·
|
Impact
of a mark-to-market gain in 2006 of $37.2 million on put options for the
pre-acquisition period associated with the March 1, 2006 acquisition of
the Sid Richardson Energy Services business;
and
|
·
|
Favorable
offsetting impact of a decrease in operating expenses in 2007 versus 2006
due to executive bonus compensation of $12.8 million awarded by the
compensation committee of the Company’s Board of Directors in 2006 in
respect of transactional activity and a $10.7 million increase in
corporate services costs allocated to the Company’s business units in
2007.
|
·
|
A
mark-to-market gain of $37.2 million on put options for the
pre-acquisition period associated with the March 1, 2006 acquisition of
Sid Richardson Energy Services;
|
·
|
Negative
impact of $12.8 million of executive bonus compensation awarded and paid
in 2006;
|
·
|
Negative
impact of a $6.5 million write-down in the carrying value of the Scranton
corporate building recorded in
2006;
|
·
|
Negative
impact of $1.4 million of corporate stock-based compensation costs
resulting from the implementation of and accounting under Financial
Accounting Standards Board (FASB) Statement No.
123(R), Accounting for Stock-Based Compensation in
2006;
|
·
|
Impact
of $3.8 million of non-cash compensation expense in the third quarter of
2005 related to separation agreements with former executives of the
Company; and
|
·
|
Charges
of $6.3 million in the first quarter of 2005 to: (i) reserve for an
other-than-temporary impairment in the Company’s investment in a
technology company, and (ii) record a liability for the guarantee by a
subsidiary of the Company of a line of credit between the technology
company and a bank.
|
·
|
Impact
of interest expense of $49.2 million and debt issuance cost amortization
of $7.8 million in 2006 associated with the bridge loan facility entered
into to finance the acquisition of the Sid Richardson Energy Services
business, which was retired using approximately $1.1 billion in net
proceeds from the sale of certain assets in August 2006 and funds obtained
in October 2006 from the issuance of the $600 million Junior Subordinated
Notes;
|
·
|
Lower
interest expense of $6 million associated with borrowings under the
Company’s credit agreements primarily due to lower average outstanding
balances in 2007 compared to 2006;
|
·
|
Lower
interest expense of $2.2 million due to the retirement of the 2.75% Senior
Notes in August 2006;
|
·
|
Lower
interest expense of $1.6 million associated with interest owed to Missouri
Gas Energy’s ratepayers in connection with its purchased gas cost recovery
mechanism primarily due to higher levels of overcollections in
2006;
|
·
|
Partially
offset by increased interest expense of $34.9 million related to the $600
million Junior Subordinated Notes issued in October
2006;
|
·
|
Partially
offset by increased interest expense of $20.6 million related to Panhandle
debt primarily due to higher debt balances in 2007 versus 2006;
and
|
·
|
Partially
offset by increased interest expense of $4.8 million under the 6.15%
Senior Notes issued in August 2006.
|
·
|
Interest
expense of $49.2 million and debt issuance cost amortization of $7.8
million associated with the bridge loan facility entered into to finance
the acquisition of the Sid Richardson Energy Services
business;
|
·
|
Increased
interest expense of $10.8 million related to Panhandle debt primarily due
to higher average interest rates in 2006 versus
2005;
|
·
|
Interest
expense of $2.5 million under the $465 million 2006 Term
Loan;
|
·
|
Interest
expense of $8.3 million related to the $600 million Junior Subordinated
Notes issued in 2006; and
|
·
|
Increased
interest expense of $4.4 million associated with borrowings under the
Company’s credit agreements primarily due to higher average outstanding
balances and higher interest rates in 2006 compared to
2005.
|
·
|
Tax
benefits of $30.9 million in 2007 versus $11.5 million in 2006 associated
with the increase in the dividends received deduction as a result of
increased dividends from the Company’s unconsolidated investment in
Citrus;
|
·
|
Reduced
tax expense of $523,000 in 2007 versus $5.4 million in 2006 associated
with the decrease in nondeductible executive compensation;
and
|
·
|
Partially offset by the release
of $9.4 million of tax reserves in 2006 for uncertain tax positions
established in prior years due to the completion of the Internal Revenue
Service (IRS) audit for the fiscal year ended
June 30, 2003 and expiring state
statutes.
|
·
|
The
release in 2005 of an $11.9 million valuation allowance, which was
originally established in 2004 for a deferred tax asset related to the
difference between the book and tax basis of the Company’s investment in
CCE Holdings. The Company determined that this valuation
allowance was no longer necessary because the book income from CCE
Holdings was substantially greater than the taxable income for 2005 and
was expected to continue to be higher for the foreseeable
future;
|
·
|
The
release in 2006 of $9.4 million of tax reserves for uncertain tax
positions established in prior years due to the completion of the IRS
audit for the fiscal year ended June 30, 2003 and expiring state statutes;
and
|
·
|
$5.4
million of additional taxes resulting from the $14.5 million of
non-deductible executive compensation paid in
2006.
|
·
|
The
Company incurred $142.4 million of income tax expense in 2006 resulting
from $379.8 million of non-deductible goodwill related to the disposition
of these assets in 2006 compared to $65.6 million of income tax expense
resulting from $175 million of non-deductible goodwill impairment related
to these assets recorded in 2005;
and
|
·
|
The
Company incurred income tax expense of $17.6 million in 2006 as a result
of the write-off of a tax-related regulatory asset of PG
Energy.
|
Years
ended December 31,
|
||||||||||||
Property,
Plant and Equipment Additions
|
2007
|
2006
|
2005
|
|||||||||
(In
thousands)
|
||||||||||||
Transportation
and Storage Segment
|
||||||||||||
LNG
Terminal Expansions/Enhancements
|
$ | 133,469 | $ | 57,045 | $ | 75,263 | ||||||
Trunkline
Field Zone Expansion
|
185,180 | 12,314 | 169 | |||||||||
East
End Enhancement
|
80,249 | 52,102 | 1,012 | |||||||||
Compression
Modernization
|
81,687 | 11,642 | - | |||||||||
Other,
primarily pipeline integrity, system
|
||||||||||||
reliability,
information technology, air
|
||||||||||||
emission
compliance
|
110,568 | 111,718 | 112,971 | |||||||||
Total
|
591,153 | 244,821 | 189,415 | |||||||||
Gathering
and Processing Segment
|
48,633 | 35,101 | (1) | - | ||||||||
Distribution
Segment
|
||||||||||||
Missouri
Safety Program
|
11,405 | 11,592 | 11,426 | |||||||||
Other,
primarily system replacement
|
||||||||||||
and
expansion
|
33,364 | 36,362 | 73,470 | |||||||||
Total
|
44,769 | 47,954 | 84,896 | |||||||||
Corporate
and other
|
4,173 | 4,798 | 2,306 | |||||||||
Total (2)
|
$ | 688,728 | $ | 332,674 | $ | 276,617 | ||||||
Contractual
Obligations (In thousands)
|
||||||||||||||||||||||||||||
2013
and
|
||||||||||||||||||||||||||||
Total
|
2008
|
2009
|
2010
|
2011
|
2012
|
thereafter
|
||||||||||||||||||||||
|
||||||||||||||||||||||||||||
Long-term
debt (1), (2)
|
$ | 3,388,913 | $ | 434,831 | $ | 60,623 | $ | 140,500 | $ | - | $ | 857,389 | $ | 1,895,570 | ||||||||||||||
Short-term
borrowing,
|
||||||||||||||||||||||||||||
including
credit facilities (1)
|
123,000 | 123,000 | - | - | - | - | - | |||||||||||||||||||||
Gas
purchases (3)
|
618,822 | 244,103 | 209,202 | 165,517 | - | - | - | |||||||||||||||||||||
Missouri
Gas Energy Safety Program
|
141,324 | 12,991 | 12,633 | 12,760 | 12,887 | 10,868 | 79,185 | |||||||||||||||||||||
Transportation
contracts
|
310,987 | 74,786 | 70,732 | 55,815 | 44,664 | 11,819 | 53,171 | |||||||||||||||||||||
Storage
contracts (4)
|
175,169 | 32,273 | 24,242 | 18,720 | 17,250 | 14,302 | 68,382 | |||||||||||||||||||||
Operating
lease payments
|
143,903 | 16,423 | 19,236 | 18,294 | 18,230 | 13,929 | 57,791 | |||||||||||||||||||||
Interest
payments on debt (5), (6)
|
4,196,668 | 213,424 | 190,243 | 184,631 | 182,961 | 151,448 | 3,273,961 | |||||||||||||||||||||
Benefit
plan contributions
|
24,314 | 24,314 | - | - | - | - | - | |||||||||||||||||||||
Other (7)
|
4,116 | 1,690 | 980 | 872 | 389 | 185 | - | |||||||||||||||||||||
Total
contractual cash obligations
|
$ | 9,127,216 | $ | 1,177,835 | $ | 587,891 | $ | 597,109 | $ | 276,381 | $ | 1,059,940 | $ | 5,428,060 | ||||||||||||||
(1)
|
The
Company is party to debt agreements containing certain covenants that, if
not satisfied, would give rise to an event of default that would cause
such debt to become immediately due and payable. Such covenants
require the Company to maintain a certain level of net worth, to meet
certain debt to total capitalization ratios, and to meet certain ratios of
earnings before depreciation, interest and taxes to cash interest
expense. At December 31, 2007, the Company was in compliance
with all of its covenants. See Item 8. Financial
Statements and Supplementary Data, Note 13 – Debt
Obligations.
|
(2)
|
The
long-term debt principal payment obligations exclude $6.1 million of
unamortized debt premium as of December 31,
2007.
|
(3)
|
The
Company has purchase gas tariffs in effect for all its utility service
areas that provide for recovery of its purchased gas costs under defined
methodologies.
|
(4)
|
Represents
charges for third party storage
capacity.
|
(5)
|
Interest
payments on debt are based upon the applicable stated or variable interest
rates as of December 31, 2007. Includes approximately $2.5
billion of interest payments associated with the $600 million Junior
Subordinated Notes due November 1,
2066.
|
(6)
|
Excludes
interest on the $100 million 6.089% Senior Notes due February 16, 2010
entered into on February 19, 2008. See
Item
8. Financial Statements and Supplementary Data, Note 25 –
Subsequent Event.
|
(7)
|
Includes
FIN 48 unrecognized tax benefits and various other contractual
obligations.
|
|
·
|
Processing
plant outages;
|
|
·
|
Higher
than anticipated FF&U efficiency
levels;
|
|
·
|
Impact
of commodity prices in general;
|
|
·
|
Lower
than expected recovery of NGLs from the residue gas stream;
and
|
|
·
|
Lower
than expected recovery of natural gas volumes to be
processed.
|
·
|
Provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that
receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the
Company;
|
·
|
Pertain
to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the
Company; and
|
·
|
Provide
reasonable assurance regarding the prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that
could have a material effect on the financial
statements.
|
(a)(1)
and (2)
|
Financial Statements
and Financial Statement
Schedules.
|
(a)(3)
|
Exhibits.
|
|
2(a)
|
Purchase
and Sale Agreement by and among SRCG, Ltd. and SRG Genpar, L.P., as
Sellers and Southern Union Panhandle LLC and Southern Union Gathering
Company LLC, as Buyers, dated as of December 15, 2005. (Filed as Exhibit
10.1 to Southern Union’s Current Report on Form 8-K filed on December 16,
2005 and incorporated herein by
reference.)
|
|
2(b)
|
Purchase
and Sale Agreement between Southern Union Company and UGI Corporation,
dated as of January 26, 2006. (Filed as Exhibit 10.1 to Southern Union’s
Current Report on Form 8-K filed on January 30, 2006 and incorporated
herein by reference.)
|
|
2(c)
|
First
Amendment to the Purchase and Sale Agreement between Southern Union
Company and UGI Corporation, dated as of August 24, 2006. (Filed as
Exhibit 10.1 to Southern Union’s Current Report on Form 8-K filed on
August 30, 2006 and incorporated herein by
reference.)
|
|
2(d)
|
Purchase
and Sale Agreement between Southern Union Company and National Grid USA,
dated as of February 15, 2006. (Filed as Exhibit 10.1 to Southern Union’s
Current Report on Form 8-K filed on February 17, 2006 and incorporated
herein by reference.)
|
|
2(e)
|
Limited
Settlement Agreement between Southern Union Company, Narragansett Electric
Company d/b/a National Grid, the Department of the Attorney General for
the State of Rhode Island and the Rhode Island Department of Environmental
Management, dated as of August 24, 2006. (Filed as Exhibit 10.2 to
Southern Union’s Current Report on Form 8-K filed on August 30, 2006 and
incorporated herein by reference.)
|
|
2(f)
|
First
Amendment to the Purchase and Sale Agreement between Southern Union
Company and National Grid USA, dated as of August 24, 2006. (Filed as
Exhibit 10.3 to Southern Union’s Current Report on Form 8-K filed on
August 30, 2006 and incorporated herein by
reference.)
|
|
2(g)
|
Redemption
Agreement by and between CCE Holdings, LLC and Energy Transfer Partners,
L.P., dated as of September 18, 2006. (Filed as Exhibit 10.1 to Southern
Union’s Current Report on Form 8-K filed on September 18, 2006 and
incorporated herein by reference.)
|
|
2(h)
|
Letter
Agreement by and between Southern Union Company and Energy Transfer
Partners, L.P., dated as of September 14, 2006. (Filed as Exhibit 10.2 to
Southern Union’s Current Report on Form 8-K filed on September 18, 2006
and incorporated herein by
reference)
|
|
3(a)
|
Amended
and Restated Certificate of Incorporation of Southern Union Company.
(Filed as Exhibit 3(a) to Southern Union’s Annual Report on Form 10-K
filed on March 16, 2006 and incorporated herein by
reference.)
|
|
3(b)
|
By-Laws
of Southern Union Company, as amended through January 3,
2007. (Filed as Exhibit 3.1 to Southern Union’s Current Report
on Form 8-K filed on January 3, 2007 and incorporated herein by
reference.)
|
|
3(c)
|
Certificate
of Designations, Preferences and Rights re: Southern Union Company’s 7.55%
Noncumulative Preferred Stock, Series A. (Filed as Exhibit 4.1 to Southern
Union’s Form 8-A/A dated October 17, 2003 and incorporated herein by
reference.)
|
|
4(a)
|
Specimen
Common Stock Certificate. (Filed as Exhibit 4(a) to Southern
Union's Annual Report on Form 10-K for the year ended December 31, 1989
and incorporated herein by
reference.)
|
|
4(b)
|
Indenture
between The Bank of New York Trust Company, N.A., as successor to Chase
Manhattan Bank, N.A., as trustee, and Southern Union Company dated
January 31, 1994. (Filed as Exhibit 4.1 to Southern
Union's Current Report on Form 8-K dated February 15, 1994 and
incorporated herein by reference.)
|
|
4(c)
|
Officers'
Certificate dated January 31, 1994 setting forth the terms of the 7.60%
Senior Debt Securities due 2024. (Filed as Exhibit 4.2 to
Southern Union's Current Report on Form 8-K dated February 15, 1994
and incorporated herein by
reference.)
|
|
4(d)
|
Officer's
Certificate of Southern Union Company dated November 3, 1999 with respect
to 8.25% Senior Notes due 2029. (Filed as Exhibit 99.1 to
Southern Union's Current Report on Form 8-K filed on November 19, 1999 and
incorporated herein by reference.)
|
|
4(e)
|
Form
of Supplemental Indenture No. 1, dated June 11, 2003, between Southern
Union Company and The Bank of New York Trust Company, N.A., as successor
to JP Morgan Chase Bank (formerly the Chase Manhattan Bank, National
Association). (Filed as Exhibit 4.5 to Southern Union’s Form 8-A/A dated
June 20, 2003 and incorporated herein by
reference.)
|
|
4(f)
|
Supplemental
Indenture No. 2, dated February 11, 2005, between Southern Union Company
and The Bank of New York Trust Company, N.A., as successor to JP Morgan
Chase Bank, N.A. (f/n/a JP Morgan Chase Bank). (Filed as Exhibit 4.4 to
Southern Union’s Form 8-A/A dated February 22, 2005 and incorporated
herein by reference.)
|
|
Subordinated
Debt Securities Indenture between Southern Union Company and The Bank of
New York Trust Company, N.A., as successor to JP Morgan Chase Bank
(as successor
to The Chase Manhattan Bank, N.A.), as Trustee. (Filed as Exhibit 4-G to
Southern Union’s Registration Statement on Form S-3 (No. 33-58297) and
incorporated herein by reference.)
|
|
4(h)
|
Second
Supplemental Indenture, dated October 23, 2006, between Southern Union
Company and The Bank of New York Trust Company, N.A., successor to JP
Morgan Chase Bank, N.A., formerly known as JPMorgan Chase Bank, formerly
known as The Chase Manhattan Bank (National
Association). (Filed as Exhibit 4.1 to Southern Union’s Form
8-K/A dated October 24, 2006 and incorporated herein by
reference.)
|
|
4(i)
|
2006
Series A Junior Subordinated Notes Due November 1, 2066 dated October 23,
2006 (Filed as Exhibit 4.2 to Southern Unions Current Report on Form 8-K/A
filed on October 24, 2006 and incorporated herein by
reference.)
|
|
4(j)
|
Replacement
Capital Covenant, dated as of October 23, 2006 by Southern Union Company,
a Delaware corporation with its successors and assigns, in favor of and
for the benefit of each Covered Debtor (as defined in the Covenant).
(Filed as Exhibit 4.3 to Southern Union’s Current Report on Form 8-K/A
filed on October 24, 2006 and incorporated herein by
reference.)
|
|
4(k) |
Southern
Union is a party to other debt instruments, none of which authorizes the
issuance of debt securities in an amount which exceeds 10% of the total
assets of Southern Union. Southern Union hereby agrees to
furnish a copy of any of these instruments to the Commission upon
request.
|
|
10(a)
|
Construction
and Term Loan Agreement between Citrus Corp., as borrower, and Pipeline
Funding Company, LLC, as lender and administrative agent, dated as of
February 5, 2008. (Filed as Exhibit 10.1 to Southern Union’s Current
Report on Form 8-K filed on February 8, 2008 and incorporated herein by
reference.)
|
|
10(b)
|
Amended
and Restated Credit Agreement between Trunkline LNG Holdings, LLC, as
borrower, Panhandle Eastern Pipeline Company, LP and CrossCountry Citrus,
LLC, as guarantors, the financial institutions listed therein Bayerische
Hypo-Und Vereinsbank AG, New York Branch, as
administrative
|
|
agent,
dated as of June 29, 2007. (Filed as Exhibit 10.1 to Southern Union’s
Current Report on Form 8-K filed on July 6, 2007 and incorporated herein
by reference.)
|
|
10(c)
|
Credit
Agreement between Trunkline LNG Holdings, LLC, as borrower, Panhandle
Eastern Pipeline Company, LP and Trunkline LNG Company, LLC, as
guarantors, the financial institutions listed therein and Hypo-Und
Vereinsbank AG, New York Branch, as administrative agent, dated as of
March 15, 2007. (Filed as Exhibit 10.1 to Southern Union’s Current Report
on Form 8-K filed on March 21, 2007 and incorporated herein by
reference.)
|
|
10(d)
|
Fourth
Amended and Restated Revolving Credit Agreement between Southern Union
Company and the Banks named therein dated September 29, 2005. (Filed as
Exhibit 10.1 to Southern Union’s Current Report on Form 8-K filed on
October 5, 2005 and incorporated herein by
reference.)
|
|
10(e)
|
First
Amendment to the Fourth Amended and Restated Revolving Credit Agreement
between Southern Union Company and the Banks named
therein. (Filed as Exhibit 10.1 to Southern Union’s Current
Report on Form 8-K filed on March 6, 2006 and incorporated herein by
reference.)
|
|
10(f)
|
Second
Amendment to Fourth Amended and Restated Revolving Credit Agreement dated
September 29, 2005, among the Company, as borrower, and the lenders party
there. (Filed as Exhibit 10.1 to Southern Union’s Current Report on Form
8-K filed on October 23, 2007 and incorporated herein by
reference.)
|
|
10(g)
|
Form
of Indemnification Agreement between Southern Union Company and each of
the Directors of Southern Union Company. (Filed as Exhibit
10(i) to Southern Union’s Annual Report on Form 10-K for the year ended
December 31, 1986 and incorporated herein by
reference.)
|
|
10(h)
|
Southern
Union Company 1992 Long-Term Stock Incentive Plan, As Amended. (Filed as
Exhibit 10(l) to Southern Union’s Annual Report on Form 10-K for the year
ended June 30, 1998 and incorporated herein by
reference.)
|
|
10(i)
|
Southern
Union Company Director's Deferred Compensation Plan. (Filed as
Exhibit 10(g) to Southern Union's Annual Report on Form 10-K for the year
ended December 31, 1993 and incorporated herein by
reference.)
|
|
10(j)
|
First
Amendment to Southern Union Company Director’s Deferred Compensation Plan,
effective April 1, 2007. (Filed as Exhibit 10(h) to Southern Union
Company’s Quarterly Report for the quarter ended September 30, 2007 and
incorporated herein by reference.)
|
|
10(k)
|
Southern
Union Company Amended Supplemental Deferred Compensation Plan with
Amendments. (Filed as Exhibit 4 to Southern Union’s Form S-8
filed May 27, 1999 and incorporated herein by
reference.)
|
|
10(l)
|
Separation
Agreement and General Release Agreement between Thomas F. Karam and
Southern Union Company dated November 8, 2005. (Filed as Exhibit 10.1 to
Southern Union’s Current Report on Form 8-K filed on November 8, 2005 and
incorporated herein by reference.)
|
|
10(m)
|
Separation
Agreement and General Release Agreement between John E. Brennan and
Southern Union Company dated July 1, 2005. (Filed as Exhibit 10.1 to
Southern Union’s Current Report on Form 8-K filed on July 5, 2005 and
incorporated herein by reference.)
|
|
10(n)
|
Separation
Agreement and General Release Agreement between David J. Kvapil and
Southern Union Company dated July 1, 2005. (Filed as Exhibit 10.4 to
Southern Union’s Current Report on Form 8-K filed on July 5, 2005 and
incorporated herein by reference.)
|
|
10(o)
|
Second
Amended and Restated Southern Union Company 2003 Stock and Incentive Plan.
(Filed as Exhibit 4 to Form S-8, SEC File No. 333-138524, filed on
November 8, 2006 and incorporated herein by
reference.)
|
|
10(p)
|
Southern
Union Company Pennsylvania Division Stock Incentive
Plan. (Filed as Exhibit 4 to Form S-8, SEC File No. 333-36146,
filed on May 3, 2000 and incorporated herein by
reference.)
|
|
10(q)
|
Southern
Union Company Pennsylvania Division 1992 Stock Option
Plan. (Filed as Exhibit 4 to Form S-8, SEC File No. 333-36150,
filed on May 3, 2000 and incorporated herein by
reference.)
|
|
|
10(r)
|
Form
of Long Term Incentive Award Agreement, dated December 28, 2006, between
Southern Union Company and the undersigned. (Filed as Exhibit 99.1 to
Southern Union’s Form 8-K dated January 3, 2007) and incorporated herein
by reference.)
|
|
10(s) |
Capital
Stock Agreement dated June 30, 1986, as amended April 3, 2000
("Agreement"), among El Paso Energy Corporation (as successor in interest
to Sonat, Inc.); CrossCountry Energy, LLC (assignee of Enron Corp., which
is the successor in interest to InterNorth, Inc. by virtue of a name
change and successor in interest to Houston Natural Gas Corporation by
virtue of a merger) and Citrus Corp. (Filed as Exhibit 10(p) to Southern
Union’s Form 10-K dated March 1, 2007 and incorporated herein by
reference.)
|
|
10(t) |
Certificate
of Incorporation of Citrus Corp. (Filed as Exhibit 10(q) to
Southern Union’s Form 10-K dated March 1, 2007 and incorporated herein by
reference.)
|
|
10(u) |
By-Laws
of Citrus Corp., filed herewith. (Filed as Exhibit 10(r) to
Southern Union’s Form 10-K dated March 1, 2007 and incorporated herein by
reference.)
|
|
14
|
Code
of Ethics and Business Conduct. (Filed as Exhibit 14 to Southern Union’s
Annual Report on Form 10-K filed on March 16, 2006 and incorporated herein
by reference.)
|
|
|
|
|
SOUTHERN
UNION COMPANY
|
|
By:
/s/ George
L. Lindemann
|
|
George
L. Lindemann
|
|
Chairman
of the Board, President and
|
|
Chief
Executive Officer
|
Signature/Name
|
Title
|
/s/ George L.
Lindemann*
George
L. Lindemann
|
Chairman
of the Board, President and
Chief
Executive Officer
(Principal
Executive Officer)
|
/s/ Richard N.
Marshall
Richard
N. Marshall
|
Senior
Vice President and Chief Financial Officer
(Principal
Financial Officer)
|
/s/ George E.
Aldrich
George
E. Aldrich
|
Vice
President and Controller
(Chief
Accounting Officer)
|
/s/ David
Brodsky*
David
Brodsky
|
Director
|
/s/ Frank W.
Denius*
Frank
W. Denius
|
Director
|
/s/ Kurt A. Gitter,
M.D.*
Kurt
A. Gitter, M.D
|
Director
|
/s/ Herbert H.
Jacobi*
Herbert
H. Jacobi
|
Director
|
/s/ Adam M.
Lindemann*
Adam
M. Lindemann
|
Director
|
/s/ Thomas N.
McCarter, III*
Thomas
N. McCarter, III
|
Director
|
/s/ George Rountree,
III*
George
Rountree, III
|
Director
|
/s/ Allan D.
Scherer*
Allan
Scherer
|
Director
|
*By: /s/ RICHARD N.
MARSHALL
|
*By: /s/ ROBERT M.
KERRIGAN, III
|
Richard
N. Marshall
|
Robert
M. Kerrigan, III
|
Senior
Vice President and Chief Financial Officer
|
Vice
President, Assistant General Counsel and
|
Attorney-in-fact
|
Secretary
|
Attorney-in-fact
|
Financial
Statements and Supplementary Data:
|
Page(s):
|
F-2
|
|
F-3
- F-4
|
|
F-5
|
|
F-6
- F-7
|
|
F-8
|
|
F-71
|
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands, except per share amounts)
|
||||||||||||
Operating
revenues (Note 21):
|
||||||||||||
Gas
distribution
|
$ | 732,109 | $ | 668,721 | $ | 752,699 | ||||||
Gas
transportation and storage
|
658,446 | 577,182 | 505,233 | |||||||||
Gas
gathering and processing
|
1,221,747 | 1,090,216 | - | |||||||||
Other
|
4,363 | 4,025 | 8,950 | |||||||||
Total
operating revenues
|
2,616,665 | 2,340,144 | 1,266,882 | |||||||||
Operating
expenses:
|
||||||||||||
Cost
of gas and other energy
|
1,483,715 | 1,377,147 | 529,450 | |||||||||
Revenue-related
taxes
|
38,584 | 35,281 | 40,080 | |||||||||
Operating,
maintenance and general
|
444,408 | 381,844 | 302,025 | |||||||||
Depreciation
and amortization
|
177,999 | 152,103 | 92,562 | |||||||||
Taxes,
other than on income and revenues
|
44,874 | 38,684 | 33,648 | |||||||||
Total
operating expenses
|
2,189,580 | 1,985,059 | 997,765 | |||||||||
Operating
income
|
427,085 | 355,085 | 269,117 | |||||||||
Other
income (expenses):
|
||||||||||||
Interest
expense
|
(203,146 | ) | (210,043 | ) | (128,470 | ) | ||||||
Earnings
from unconsolidated investments
|
100,914 | 141,370 | 70,742 | |||||||||
Other,
net (Note 4)
|
(883 | ) | 39,918 | (8,241 | ) | |||||||
Total
other expenses, net
|
(103,115 | ) | (28,755 | ) | (65,969 | ) | ||||||
Earnings
from continuing operations before income taxes
|
323,970 | 326,330 | 203,148 | |||||||||
Federal
and state income taxes (Note 15)
|
95,259 | 109,247 | 50,052 | |||||||||
Earnings
from continuing operations
|
228,711 | 217,083 | 153,096 | |||||||||
Discontinued
operations (Note 19):
|
||||||||||||
Loss
from discontinued operations before
|
||||||||||||
income
taxes
|
- | (2,369 | ) | (111,588 | ) | |||||||
Federal
and state income taxes
|
- | 150,583 | 20,825 | |||||||||
Loss
from discontinued operations
|
- | (152,952 | ) | (132,413 | ) | |||||||
Net
earnings
|
228,711 | 64,131 | 20,683 | |||||||||
Preferred
stock dividends
|
(17,365 | ) | (17,365 | ) | (17,365 | ) | ||||||
Net
earnings available for common stockholders
|
$ | 211,346 | $ | 46,766 | $ | 3,318 | ||||||
Net
earnings available for common stockholders
|
||||||||||||
from
continuing operations per share (Note 5):
|
||||||||||||
Basic
|
$ | 1.76 | $ | 1.74 | $ | 1.24 | ||||||
Diluted
|
$ | 1.75 | $ | 1.70 | $ | 1.20 | ||||||
Net
earnings available for common stockholders per
|
||||||||||||
share
(Note 5):
|
||||||||||||
Basic
|
$ | 1.76 | $ | 0.41 | $ | 0.03 | ||||||
Diluted
|
$ | 1.75 | $ | 0.40 | $ | 0.03 | ||||||
Cash
dividends declared on common stock per share:
|
$ | 0.45 | $ | 0.40 | N/A | |||||||
Weighted
average shares outstanding (Note 5):
|
||||||||||||
Basic
|
119,930 | 114,787 | 109,395 | |||||||||
Diluted
|
120,674 | 117,344 | 112,794 | |||||||||
Years
Ended December 31,
|
||||||||
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 5,690 | $ | 5,751 | ||||
Accounts
receivable, billed and unbilled,
|
||||||||
net
of allowances of $4,144 and $4,830, respectively
|
358,521 | 298,231 | ||||||
Accounts
receivable – affiliates
|
29,943 | 3,546 | ||||||
Inventories
|
263,618 | 241,137 | ||||||
Deferred
gas purchase costs
|
3,496 | - | ||||||
Gas
imbalances - receivable
|
105,371 | 69,877 | ||||||
Prepayments
and other assets
|
41,685 | 72,317 | ||||||
Total
current assets
|
808,324 | 690,859 | ||||||
Property,
plant and equipment (Note 6):
|
||||||||
Plant
in service
|
5,509,992 | 5,025,631 | ||||||
Construction
work in progress
|
377,918 | 178,935 | ||||||
5,887,910 | 5,204,566 | |||||||
Less
accumulated depreciation and amortization
|
(785,623 | ) | (620,139 | ) | ||||
Net
property, plant and equipment
|
5,102,287 | 4,584,427 | ||||||
Deferred
charges:
|
||||||||
Regulatory
assets (Note 8)
|
64,193 | 65,865 | ||||||
Deferred
charges
|
60,468 | 61,602 | ||||||
Total
deferred charges
|
124,661 | 127,467 | ||||||
Unconsolidated
investments (Note 9)
|
1,240,420 | 1,254,749 | ||||||
Goodwill (Note
7)
|
89,227 | 89,227 | ||||||
Other
|
32,994 | 36,061 | ||||||
Total
assets
|
$ | 7,397,913 | $ | 6,782,790 | ||||
Years
Ended December 31,
|
||||||||
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||
Stockholders’
equity (Note 10):
|
||||||||
Common
stock, $1 par value; 200,000 shares authorized;
|
||||||||
121,102
shares issued at December 31, 2007
|
$ | 121,102 | $ | 120,718 | ||||
Preferred
stock, no par value; 6,000 shares authorized;
|
||||||||
920
shares issued at December 31, 2007 (Note 12)
|
230,000 | 230,000 | ||||||
Premium
on capital stock
|
1,784,223 | 1,775,763 | ||||||
Less
treasury stock: 1,063 and 1,059
|
||||||||
shares,
respectively, at cost
|
(27,839 | ) | (27,708 | ) | ||||
Less
common stock held in trust: 783
|
||||||||
and
863 shares, respectively
|
(15,085 | ) | (14,628 | ) | ||||
Deferred
compensation plans
|
15,148 | 14,691 | ||||||
Accumulated
other comprehensive loss
|
(11,594 | ) | (901 | ) | ||||
Retained
earnings (deficit)
|
109,851 | (47,527 | ) | |||||
Total
stockholders' equity
|
2,205,806 | 2,050,408 | ||||||
Long-term
debt obligations (Note 13)
|
2,960,326 | 2,689,656 | ||||||
Total
capitalization
|
5,166,132 | 4,740,064 | ||||||
Current
liabilities:
|
||||||||
Long-term
debt due within one year (Note 13)
|
434,680 | 461,011 | ||||||
Notes
payable (Note 13)
|
123,000 | 100,000 | ||||||
Accounts
payable and accrued liabilities
|
335,253 | 316,764 | ||||||
Federal,
state and local taxes payable
|
35,461 | 30,828 | ||||||
Accrued
interest
|
45,911 | 46,342 | ||||||
Customer
deposits
|
17,589 | 14,670 | ||||||
Deferred
gas purchases
|
- | 15,551 | ||||||
Gas
imbalances - payable
|
272,850 | 146,995 | ||||||
Other
|
58,969 | 68,663 | ||||||
Total
current liabilities
|
1,323,713 | 1,200,824 | ||||||
Deferred
credits
|
215,063 | 224,725 | ||||||
Accumulated
deferred income taxes (Note 15)
|
693,005 | 617,177 | ||||||
Commitments
and contingencies (Note 18)
|
||||||||
Total
stockholders' equity and liabilities
|
$ | 7,397,913 | $ | 6,782,790 | ||||
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Cash
flows provided by (used in) operating activities:
|
||||||||||||
Net
earnings
|
$ | 228,711 | $ | 64,131 | $ | 20,683 | ||||||
Adjustments
to reconcile net earnings to net cash flows
|
||||||||||||
provided
by (used in) operating activities:
|
||||||||||||
Depreciation
and amortization
|
177,999 | 154,601 | 126,393 | |||||||||
Goodwill
impairment
|
- | - | 175,000 | |||||||||
Amortization
of debt expense, net
|
743 | 12,130 | 2,186 | |||||||||
Deferred
income taxes
|
71,147 | 225,843 | 61,211 | |||||||||
Provision
for bad debts
|
11,391 | 20,151 | 22,519 | |||||||||
Provision
for impairment of other assets
|
7,660 | 6,500 | 2,338 | |||||||||
(Gain)
loss on derivative
|
9 | (55,146 | ) | - | ||||||||
Loss
on sale of subsidiaries and other assets
|
- | 56,815 | - | |||||||||
Non-cash
stock compensation
|
3,345 | 6,804 | 3,848 | |||||||||
Earnings
from unconsolidated investments, adjusted for cash
distributions
|
2,636 | (92,607 | ) | (55,742 | ) | |||||||
Other
|
12,999 | (5,643 | ) | (1,821 | ) | |||||||
Changes
in operating assets and liabilities, net of acquisitions:
|
||||||||||||
Accounts
receivable, billed and unbilled
|
(76,778 | ) | 147,450 | (126,590 | ) | |||||||
Accounts
payable and accrued liabilities
|
(22,788 | ) | (67,021 | ) | 43,681 | |||||||
Customer
deposits
|
2,919 | 3,542 | 2,940 | |||||||||
Deferred
gas purchase costs
|
(19,047 | ) | (35,906 | ) | 59,385 | |||||||
Inventories
|
41,113 | (14,369 | ) | (52,420 | ) | |||||||
Deferred
charges and credits
|
(3,443 | ) | (37,459 | ) | (26,849 | ) | ||||||
Prepaids
and other assets
|
47,700 | 104,889 | (41,256 | ) | ||||||||
Taxes
and other liabilities
|
(15,908 | ) | (35,900 | ) | 3,131 | |||||||
Net
cash flows provided by operating activities
|
470,408 | 458,805 | 218,637 | |||||||||
Cash
flows (used in) provided by investing activities:
|
||||||||||||
Additions
to property, plant and equipment
|
(616,883 | ) | (347,896 | ) | (279,721 | ) | ||||||
Acquisitions
of operations, net of cash received
|
- | (1,537,627 | ) | - | ||||||||
Proceeds
(payments) from sale of subsidiaries
|
(49,304 | ) | 1,076,714 | - | ||||||||
Other
|
(417 | ) | 2,005 | (2,808 | ) | |||||||
Net
cash flows used in investing activities
|
(666,604 | ) | (806,804 | ) | (282,529 | ) | ||||||
Cash
flows provided by (used in) financing activities:
|
||||||||||||
Decrease
in book overdraft
|
(7,738 | ) | (4,941 | ) | (17,091 | ) | ||||||
Issuance
of long-term debt
|
755,000 | 1,065,000 | 255,626 | |||||||||
Issuance
costs of debt and equity
|
(5,794 | ) | (10,590 | ) | (3,536 | ) | ||||||
Issuance
of common stock and equity units
|
- | 125,000 | 431,772 | |||||||||
Issuance
of Bridge Loan
|
- | 1,600,000 | - | |||||||||
Repayment
of Bridge Loan
|
- | (1,600,000 | ) | - | ||||||||
Dividends
paid on common and preferred stock
|
(65,295 | ) | (51,695 | ) | (17,365 | ) | ||||||
Repayment
of debt and capital lease obligation
|
(508,406 | ) | (470,365 | ) | (335,567 | ) | ||||||
Net
(payments) borrowings under revolving credit facilities
|
23,000 | (320,000 | ) | (279,000 | ) | |||||||
Proceeds
from exercise of stock options
|
3,718 | 9,216 | 22,242 | |||||||||
Other
|
1,650 | (4,813 | ) | (6,304 | ) | |||||||
Net
cash flows provided by financing activities
|
196,135 | 336,812 | 50,777 | |||||||||
Change
in cash and cash equivalents
|
(61 | ) | (11,187 | ) | (13,115 | ) | ||||||
Cash
and cash equivalents at beginning of period
|
5,751 | 16,938 | 30,053 | |||||||||
Cash
and cash equivalents at end of period
|
$ | 5,690 | $ | 5,751 | $ | 16,938 | ||||||
Cash
paid for interest, net of amounts capitalized
|
$ | 213,656 | $ | 204,573 | $ | 139,770 | ||||||
Cash
paid for income taxes, net of refunds
|
13,979 | 50,750 | (2,007 | ) | ||||||||
Common
|
Preferred
|
Premium
|
Common
|
Deferred
|
Accumulated
|
Total
|
|||||||||||
Stock,
|
Stock,
|
on
|
Treasury
|
|
Stock
|
Compen-
|
|
Other
|
Retained
|
Stock
|
|||||||
$1
Par
|
No
Par
|
Capital
|
Stock,
|
Held
|
sation
|
Comprehensive
|
|
Earnings
|
Holders
|
||||||||
Value
|
Value
|
Stock
|
at
cost
|
In
Trust
|
Plans
|
Income
(Loss)
|
|
(Deficit)
|
Equity
|
||||||||
(In
thousands)
|
|||||||||||||||||
Balance
December 31, 2004
|
$ 90,763
|
$ 230,000
|
$ 1,204,590
|
$ (12,870)
|
$ (17,980)
|
$ 14,128
|
$ (59,118)
|
$ 48,044
|
$ 1,497,557
|
||||||||
Comprehensive income (loss): |
|
||||||||||||||||
Net
earnings
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
20,683
|
20,683
|
||||||||
Unrealized gain on hedging
|
|
||||||||||||||||
activities,
net of tax
|
-
|
-
|
-
|
-
|
-
|
-
|
1,075
|
-
|
1,075
|
||||||||
Minimum pension liability |
|
||||||||||||||||
adjustment,
net of tax
|
-
|
-
|
-
|
-
|
-
|
-
|
1,771
|
-
|
1,771
|
||||||||
Comprehensive
income
|
|
23,529
|
|||||||||||||||
Preferred
stock dividends
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(17,365)
|
(17,365)
|
||||||||
Distibution
of common stock
|
|
||||||||||||||||
held
in trust
|
-
|
-
|
3,130
|
-
|
4,186
|
-
|
-
|
-
|
7,316
|
||||||||
Issuance
of common stock
|
14,913
|
-
|
316,859
|
-
|
-
|
-
|
-
|
-
|
331,772
|
||||||||
Issuance
cost of equity units
|
-
|
-
|
(2,622)
|
-
|
-
|
-
|
-
|
-
|
(2,622)
|
||||||||
Restricted
stock award
|
-
|
-
|
4,998
|
-
|
-
|
(4,998)
|
-
|
-
|
-
|
||||||||
Restricted
stock amortization
|
-
|
-
|
-
|
-
|
-
|
2,198
|
-
|
-
|
2,198
|
||||||||
Contract
adjustment payment
|
-
|
-
|
(1,759)
|
-
|
-
|
-
|
-
|
-
|
(1,759)
|
||||||||
Purchase
of treasury stock
|
-
|
-
|
-
|
(15,032)
|
-
|
-
|
-
|
-
|
(15,032)
|
||||||||
5%
stock dividend
|
5,294
|
-
|
129,121
|
-
|
-
|
-
|
-
|
(134,415)
|
-
|
||||||||
Stock
option award
|
-
|
-
|
3,848
|
-
|
-
|
-
|
-
|
-
|
3,848
|
||||||||
Exercise
of stock options
|
1,560
|
-
|
20,617
|
336
|
(271)
|
-
|
-
|
-
|
22,242
|
||||||||
Payment
on note receivable
|
-
|
-
|
2,385
|
-
|
-
|
-
|
-
|
-
|
2,385
|
||||||||
Contributions
to Trust
|
-
|
-
|
-
|
-
|
(1,025)
|
1,025
|
-
|
-
|
-
|
||||||||
Disbursements
from Trust
|
-
|
-
|
-
|
-
|
2,180
|
(2,180)
|
-
|
-
|
-
|
||||||||
Balance
December 31, 2005
|
$ 112,530
|
$ 230,000
|
$ 1,681,167
|
$ (27,566)
|
$ (12,910)
|
$ 10,173
|
$ (56,272)
|
$ (83,053)
|
$ 1,854,069
|
||||||||
Comprehensive income (loss): |
|
||||||||||||||||
Net
earnings
|
-
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
64,131
|
64,131
|
|||
Unrealized loss on hedging |
|
||||||||||||||||
activities,
net of tax
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
918
|
-
|
918
|
||
Change
in fair value of hedging
|
|
||||||||||||||||
derivatives,
net of tax
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
5,276
|
-
|
5,276
|
||
Reversal
of minimum pension
|
|
||||||||||||||||
liability
related to disposition
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
26,331
|
-
|
26,331
|
||
Minimum
pension liability
|
|
||||||||||||||||
adjustment,
net of tax
|
-
|
-
|
-
|
-
|
-
|
-
|
6,803
|
-
|
6,803
|
||||||||
Comprehensive
income
|
|
103,459
|
|||||||||||||||
Adjustment
to initially apply FASB
|
|
||||||||||||||||
Statement
No. 158
|
-
|
-
|
-
|
-
|
-
|
-
|
16,043
|
-
|
16,043
|
||||||||
Preferred
stock dividends
|
-
|
|
-
|
|
(8,683)
|
-
|
-
|
-
|
|
-
|
(8,682)
|
(17,365)
|
|||||
Cash
dividends declared
|
-
|
|
-
|
|
(26,366)
|
-
|
-
|
-
|
|
-
|
(19,923)
|
(46,289)
|
|||||
Share-based
compensation
|
-
|
|
-
|
|
6,804
|
-
|
-
|
-
|
|
-
|
|
-
|
6,804
|
||||
Implementation
of FAS 123R
|
-
|
|
-
|
|
(2,800)
|
-
|
-
|
2,800
|
|
-
|
|
-
|
-
|
||||
Restricted
stock awards
|
146
|
|
-
|
|
(146)
|
(142)
|
-
|
-
|
|
-
|
|
-
|
(142)
|
||||
Exercise
of stock options
|
629
|
|
-
|
|
9,544
|
-
|
-
|
-
|
|
-
|
|
-
|
10,173
|
||||
Contributions
to Trust
|
-
|
|
-
|
|
-
|
-
|
(3,079)
|
3,079
|
|
-
|
|
-
|
-
|
||||
Disbursements
from Trust
|
-
|
|
-
|
|
-
|
-
|
1,361
|
(1,361)
|
|
-
|
|
-
|
-
|
||||
Equity
Units Conversion
|
7,413
|
|
-
|
|
116,243
|
-
|
-
|
-
|
|
-
|
|
-
|
123,656
|
||||
Balance
December 31, 2006
|
$ 120,718
|
$ 230,000
|
$ 1,775,763
|
$ (27,708)
|
$ (14,628)
|
$ 14,691
|
$ (901)
|
$ (47,527)
|
$ 2,050,408
|
||||||||
Common
|
Preferred
|
Premium
|
Common
|
Deferred
|
Accumulated
|
Total
|
||||||||||||||||||||||||||||||
Stock,
|
Stock,
|
on
|
Treasury
|
Stock
|
Compen-
|
Other
|
Retained
|
Stock-
|
||||||||||||||||||||||||||||
$1
Par
|
No
Par
|
Capital
|
Stock,
|
Held
|
sation
|
Comprehensive
|
Earnings
|
holders'
|
||||||||||||||||||||||||||||
Value
|
Value
|
Stock
|
at
cost
|
In
Trust
|
Plans
|
Income
(Loss)
|
(Deficit)
|
Equity
|
||||||||||||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||||||||||||||
Balance
December 31, 2006
|
$ | 120,718 | $ | 230,000 | $ | 1,775,763 | $ | (27,708 | ) | $ | (14,628 | ) | $ | 14,691 | $ | (901 | ) | $ | (47,527 | ) | $ | 2,050,408 | ||||||||||||||
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||||||
Net
earnings
|
- | - | - | - | - | - | - | 228,711 | 228,711 | |||||||||||||||||||||||||||
Reclassification
of unrealized
|
||||||||||||||||||||||||||||||||||||
gain
on hedging activities,
|
||||||||||||||||||||||||||||||||||||
net
of tax
|
- | - | - | - | - | - | (4,001 | ) | - | (4,001 | ) | |||||||||||||||||||||||||
Change
in fair value of hedging
|
||||||||||||||||||||||||||||||||||||
derivatives,
net of tax
|
- | - | - | - | - | - | (11,320 | ) | - | (11,320 | ) | |||||||||||||||||||||||||
Realized
gain (loss) on interest
|
||||||||||||||||||||||||||||||||||||
rate
hedges, net of tax
|
- | - | - | - | - | - | (2,366 | ) | (2,366 | ) | ||||||||||||||||||||||||||
Recognized actuarial gain (loss) |
|
|||||||||||||||||||||||||||||||||||
and
prior service credit (cost),
|
||||||||||||||||||||||||||||||||||||
net
of tax
|
- | - | - | - | - | - | 6,994 | - | 6,994 | |||||||||||||||||||||||||||
Comprehensive
income
|
- | - | - | - | - | - | - | - | 218,018 | |||||||||||||||||||||||||||
Preferred
stock dividends
|
- | - | - | - | - | - | - | (17,365 | ) | (17,365 | ) | |||||||||||||||||||||||||
Cash
dividends declared
|
- | - | - | - | - | - | - | (53,968 | ) | (53,968 | ) | |||||||||||||||||||||||||
Share-based
compensation
|
- | - | 3,345 | - | - | - | - | - | 3,345 | |||||||||||||||||||||||||||
Restricted
stock issuances
|
111 | - | (111 | ) | (131 | ) | - | - | - | - | (131 | ) | ||||||||||||||||||||||||
Exercise
of stock options
|
273 | - | 5,226 | - | - | - | - | - | 5,499 | |||||||||||||||||||||||||||
Contributions
to Trust
|
- | - | - | - | (769 | ) | 769 | - | - | - | ||||||||||||||||||||||||||
Disbursements
from Trust
|
- | - | - | - | 312 | (312 | ) | - | - | - | ||||||||||||||||||||||||||
Balance
December 31, 2007
|
$ | 121,102 | $ | 230,000 | $ | 1,784,223 | $ | (27,839 | ) | $ | (15,085 | ) | $ | 15,148 | $ | (11,594 | ) | $ | 109,851 | $ | 2,205,806 | |||||||||||||||
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Beginning
balance
|
$ | 4,830 | $ | 15,893 | $ | 15,424 | ||||||
Additions:
charged to cost and
expenses (1)
|
11,391 | 9,646 | 22,519 | |||||||||
Deductions:
write-off of uncollectible accounts
|
(12,657 | ) | (9,756 | ) | (22,751 | ) | ||||||
Balance
related to discontinued operations (2)
|
- | (10,968 | ) | - | ||||||||
Other
|
580 | 15 | 701 | |||||||||
Ending
balance
|
$ | 4,144 | $ | 4,830 | $ | 15,893 | ||||||
(2)
|
Represents
elimination of the allowance for doubtful accounts balance resulting from
the Company’s August 24, 2006 sale of the assets of the PG Energy natural
gas distribution division and the Rhode Island operations of its New
England Gas Company natural gas distribution
division.
|
Year
Ended
|
||||
December
31,
|
||||
2005
|
||||
(In
thousands, except per share amounts)
|
|
|||
|
||||
Net
earnings, as reported
|
$ | 20,683 | ||
Add stock-based compensation expense included in | ||||
reported
net earnings, net of related taxes
|
3,767 | |||
Deduct
total stock-based employee compensation
|
||||
expense
determined under fair value based
|
||||
method
for all awards, net of related taxes
|
4,355 | |||
Pro
forma net earnings
|
$ | 20,095 | ||
Net earnings available for common stockholders per share: | ||||
Basic-
as reported
|
$ | 0.03 | ||
Basic-
pro forma
|
$ | 0.02 | ||
Diluted-
as reported
|
$ | 0.03 | ||
Diluted-
pro forma
|
$ | 0.02 | ||
At
March 1, 2006
|
||||
(In
thousands)
|
||||
Property,
plant and equipment (1)
|
$ | 1,562,835 | ||
Current
assets (2)
|
162,793 | |||
Unconsolidated
investment (3)
|
5,767 | |||
Other
non-current assets (4)
|
2,618 | |||
Total
assets acquired
|
1,734,013 | |||
Current
liabilities
|
141,244 | |||
Deferred
taxes
|
8,427 | |||
Other
non-current liabilities
|
634 | |||
Total
liabilities assumed
|
150,305 | |||
Net
assets acquired
|
$ | 1,583,708 | ||
(1)
|
Includes
an allocation of $13.5 million to other intangibles for leases and
software with weighted average lives of 4 years and 1 year
respectively.
|
(2)
|
Includes
cash and cash equivalents of approximately $53.7
million.
|
(3)
|
Represents
a 50 percent ownership interest in Grey Ranch Plant LP (Grey
Ranch).
|
(4)
|
Except
for $33,000 of other non-current assets, balance is comprised of
intangibles for customer relationships with a weighted-average life of 3
years.
|
Year
Ended
|
||||||||
December
31,
|
||||||||
2006
|
2005
|
|||||||
(In
thousands, except per share amounts)
|
||||||||
Operating
revenue
|
$ | 2,570,693 | $ | 2,636,056 | ||||
Net earnings available for common shareholders | ||||||||
from
continuing operations
|
209,807 | 163,471 | ||||||
Net earnings available for common shareholders from | ||||||||
continuing
operations per share:
|
||||||||
Basic
|
$ | 1.83 | $ | 1.49 | ||||
Diluted
|
$ | 1.79 | $ | 1.45 | ||||
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands, except per share amounts)
|
||||||||||||
Net
earnings from continuing operations
|
$ | 228,711 | $ | 217,083 | $ | 153,096 | ||||||
Loss
from discontinued operations
|
- | (152,952 | ) | (132,413 | ) | |||||||
Preferred
stock dividends
|
(17,365 | ) | (17,365 | ) | (17,365 | ) | ||||||
Net
earnings available for common stockholders
|
$ | 211,346 | $ | 46,766 | $ | 3,318 | ||||||
Weighted
average shares outstanding - Basic
|
119,930 | 114,787 | 109,395 | |||||||||
Weighted
average shares outstanding - Diluted
|
120,674 | 117,344 | 112,794 | |||||||||
Basic
earnings per share:
|
||||||||||||
Net
earnings available for common stockholders
|
||||||||||||
from
continuing operations
|
$ | 1.76 | $ | 1.74 | $ | 1.24 | ||||||
Loss
from discontinued operations
|
- | (1.33 | ) | (1.21 | ) | |||||||
Net
earnings available for common stockholders
|
$ | 1.76 | $ | 0.41 | $ | 0.03 | ||||||
Diluted
earnings per share:
|
||||||||||||
Net
earnings available for common
|
||||||||||||
stockholders
from continuing operations
|
$ | 1.75 | $ | 1.70 | $ | 1.20 | ||||||
Loss
from discontinued operations
|
- | (1.30 | ) | (1.17 | ) | |||||||
Net
earnings available for common stockholders
|
$ | 1.75 | $ | 0.40 | $ | 0.03 | ||||||
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Weighted
average shares outstanding - Basic
|
119,930 | 114,787 | 109,395 | |||||||||
Add
assumed vesting of restricted stock
|
35 | 35 | 16 | |||||||||
Add
assumed conversion of equity units
|
248 | 2,021 | 2,141 | |||||||||
Add
assumed exercise of stock options
|
||||||||||||
and
stock appreciation rights
|
461 | 501 | 1,242 | |||||||||
Weighted
average shares outstanding - Dilutive
|
120,674 | 117,344 | 112,794 | |||||||||
December
31,
|
||||||||||
Property,
Plant and Equipment
|
Lives
in Years (1)
|
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||||
Gathering
and processing plant
|
3-50
|
$ | 1,678,953 | $ | 1,623,265 | |||||
Transmission
plant
|
36-46
|
1,770,742 | 1,400,547 | |||||||
Distribution
plant
|
10-75
|
930,349 | 897,075 | |||||||
General
- LNG
|
20-40
|
624,250 | 619,018 | |||||||
Underground
storage plant
|
36-46
|
290,753 | 279,845 | |||||||
General
plant and other
|
1-50
|
214,945 | 205,881 | |||||||
Plant in service
(2)
|
5,509,992 | 5,025,631 | ||||||||
Construction
work in progress
|
377,918 | 178,935 | ||||||||
5,887,910 | 5,204,566 | |||||||||
Less accumulated depreciation and
amortization (2)
|
785,623 | 620,139 | ||||||||
Net
property, plant and equipment
|
$ | 5,102,287 | $ | 4,584,427 | ||||||
_________________________
|
||||||||||
(1) The composite weighted-average depreciation rates for the years ended December 31, 2007, 2006 and | ||||||||||
2005 were 3.4 percent, 3.0 percent and 3.0 percent, respectively. |
|
|||||||||
(2)
Includes capitalized computerized software cost totaling:
|
||||||||||
Unamortized
computer software cost
|
$ | 109,167 | $ | 96,556 | ||||||
Less
accumulated amortization
|
45,824 | 41,186 | ||||||||
Net
capitalized computer software costs
|
$ | 63,343 | $ | 55,370 | ||||||
Goodwill
Analysis
|
Amounts
|
|||
(In
thousands)
|
||||
Balance
as of December 31, 2004
|
640,547 | |||
Impairment
losses
|
(175,000 | ) | ||
Balance
as of December 31, 2005
|
465,547 | |||
Impairment
losses
|
- | |||
Write-off
associated with sales
|
(376,320 | ) | ||
Balance
as of December 31, 2006
|
89,227 | |||
Impairment
losses
|
- | |||
Balance
as of December 31, 2007
|
$ | 89,227 | ||
December
31,
|
||||||||
Regulatory
Assets
|
2007
|
2006
|
||||||
(In
thousands)
|
||||||||
Pension
and Postretirement Benefits
|
$ | 32,889 | $ | 33,969 | ||||
Environmental
|
21,782 | 15,571 | ||||||
Missouri
Safety Program
|
5,546 | 8,751 | ||||||
Other
|
3,976 | 7,574 | ||||||
$ | 64,193 | $ | 65,865 | |||||
December
31,
|
||||||||
Unconsolidated
Investments
|
2007
|
2006
|
||||||
(In
thousands)
|
||||||||
Equity
investments:
|
||||||||
Citrus
|
$ | 1,219,009 | $ | 1,233,172 | ||||
Other
|
21,411 | 20,802 | ||||||
Investments
at cost
|
- | 775 | ||||||
$ | 1,240,420 | $ | 1,254,749 | |||||
At
December 31, 2007
|
At
December 31, 2006
|
|||||||||||||||
Other
Equity
|
Other
Equity
|
|||||||||||||||
Citrus
|
Investments
|
Citrus
|
Investments
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Balance
Sheet Data:
|
||||||||||||||||
Current
assets
|
$ | 59,644 | $ | 7,324 | $ | 64,295 | $ | 3,552 | ||||||||
Non-current
assets
|
3,049,214 | 38,008 | 3,056,818 | 37,633 | ||||||||||||
Current
liabilities
|
208,508 | 1,040 | 191,341 | 1,589 | ||||||||||||
Non-current
liabilities
|
1,697,218 | 1,792 | 1,636,671 | 1,802 | ||||||||||||
Year
Ended
|
Year
Ended
|
|||||||||||||||||||
December
31, 2007
|
December
31, 2006
|
|||||||||||||||||||
Other
Equity
|
CCE
|
Other
Equity
|
||||||||||||||||||
Citrus
|
Investments
|
Holdings
(1)
|
Citrus
(4)
|
Investments
|
||||||||||||||||
(In
thousands)
|
||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||
Revenues
|
$ | 495,513 | $ | 13,061 | $ | - | $ | 37,598 | $ | 5,386 | ||||||||||
Operating
income (loss)
|
283,203 | 4,424 | (5,729 | ) | 21,201 | 1,157 | ||||||||||||||
Equity
earnings
|
- | - | 70,086 | (2) | - | - | ||||||||||||||
Interest
expense
|
73,871 | 127 | 25,445 | 7,109 | 146 | |||||||||||||||
Earnings
from discontinued
|
||||||||||||||||||||
operations
|
- | - | 156,612 | (3) | - | - | ||||||||||||||
Net
earnings
|
|
157,092 | 5,256 | 196,857 | 9,579 | 1,005 | ||||||||||||||
Excess
Purchase Costs
|
Amortization
Period
|
||||||
(In
thousands)
|
|||||||
Property,
plant and equipment
|
$ | 2,885 |
40
years
|
||||
Capitalized
software
|
1,478 |
5
years
|
|||||
Long-term
debt (1)
|
(80,204 | ) |
4-20
years
|
||||
Deferred
taxes (1)
|
(6,883 | ) |
40
years
|
||||
Other
net liabilities
|
(541 | ) |
N/A
|
||||
Goodwill (2)
|
664,609 |
N/A
|
|||||
Sub-total
|
581,344 | ||||||
Accumulated,
net accretion to equity earnings
|
36,102 | ||||||
Net
investment in excess of underlying equity
|
$ | 617,446 | |||||
(1)
|
Accretion
of this amount increases equity earnings and accumulated net
accretion.
|
(2)
|
The
Company’s tax basis in the investment in Citrus includes equity
goodwill. See “Goodwill Evaluation”
below.
|
Shareholder
|
Date
|
Amount
|
Amount
|
|||||||
Record
Date
|
Paid
|
Per
Share
|
Paid
|
|||||||
(In
thousands)
|
||||||||||
December
28, 2007
|
January
11, 2008
|
$ | 0.15 | $ | 17,999 | |||||
September
28, 2007
|
October
12, 2007
|
0.10 | 11,997 | |||||||
June
29, 2007
|
July
13, 2007
|
0.10 | 11,995 | |||||||
March
30, 2007
|
April
13, 2007
|
0.10 | 11,977 | |||||||
December
29, 2006
|
January
12, 2007
|
$ | 0.10 | $ | 11,961 | |||||
September
29, 2006
|
October
13, 2006
|
0.10 | 11,956 | |||||||
June
30, 2006
|
July
14, 2006
|
0.10 | 11,197 | |||||||
March
31, 2006
|
April
14, 2006
|
0.10 | 11,175 | |||||||
|
·
|
An
increase from 7,000,000 to 9,000,000 in the aggregate number of shares of
stock that may be issued under the
plan;
|
|
·
|
An
increase from 725,000 to 1,500,000 in the total number of shares of stock
that may be issued pursuant to stock awards, performance units and other
equity-based rights; and
|
|
·
|
An
increase from 4,000 to 5,000 in the maximum number of shares of restricted
common stock that each non-employee director is eligible to receive
annually.
|
|
·
|
Processing
plant outages;
|
|
·
|
Higher
than anticipated FF&U efficiency
levels;
|
|
·
|
Impact
of commodity prices in general;
|
|
·
|
Lower
than expected recovery of NGLs from the residue gas stream;
and
|
|
·
|
Lower
than expected recovery of natural gas volumes to be
processed.
|
Years
Ended December 31,
|
||||||||
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||
Change
in fair value of commodity hedges - increase
|
||||||||
(decrease)
in Accumulated other
comprehensive loss,
|
||||||||
excluding
tax expense effect of $(775) and $7,556, respectively
|
$ | (2,054 | ) | $ | 19,826 | |||
Reclassification
of unrealized gain on
|
||||||||
commodity
hedges - increase of Operating
Revenues,
|
||||||||
excluding
tax expense effect of $2,425 and $4,266, respectively
|
6,422 | 11,350 | ||||||
Loss
realized upon cash settlement - decrease
|
||||||||
of
Operating
revenues
|
718 | 45 | ||||||
Loss
on ineffectiveness of commodity hedges
|
- | 1,634 | ||||||
Cash
realized on settlement of commodity hedges
|
35,374 | 74,214 | ||||||
December
31, 2007
|
December
31, 2006
|
|||||||||||||||
Carrying
Value
|
Fair
Value
|
Carrying
Value
|
Fair
Value
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Long-Term
Debt Obligations:
|
||||||||||||||||
Southern
Union
|
||||||||||||||||
7.60%
Senior Notes due 2024
|
$ | 359,765 | $ | 378,473 | $ | 359,765 | $ | 384,948 | ||||||||
8.25%
Senior Notes due 2029
|
300,000 | 336,090 | 300,000 | 371,367 | ||||||||||||
7.24%
to 9.44% First Mortgage Bonds
|
19,500 | 19,500 | 19,500 | 19,500 | ||||||||||||
due
2020 to 2027
|
||||||||||||||||
4.375%
Senior Notes due 2008
|
100,000 | 100,000 | 100,000 | 100,000 | ||||||||||||
6.15%
Senior Notes due 2008
|
125,000 | 124,538 | 125,000 | 125,655 | ||||||||||||
7.20%
Junior Subordinated Notes due 2066
|
600,000 | 590,280 | 600,000 | 598,572 | ||||||||||||
1,504,265 | 1,548,881 | 1,504,265 | 1,600,042 | |||||||||||||
Panhandle
|
||||||||||||||||
2.75%
Senior Notes due 2007
|
- | - | 200,000 | 200,000 | ||||||||||||
4.80%
Senior Notes due 2008
|
300,000 | 298,140 | 300,000 | 300,000 | ||||||||||||
6.05%
Senior Notes due 2013
|
250,000 | 252,650 | 250,000 | 251,053 | ||||||||||||
6.20%
Senior Notes due 2017
|
300,000 | 297,240 | - | - | ||||||||||||
6.50%
Senior Notes due 2009
|
60,623 | 62,132 | 60,623 | 61,721 | ||||||||||||
8.25%
Senior Notes due 2010
|
40,500 | 43,396 | 40,500 | 43,180 | ||||||||||||
7.00%
Senior Notes due 2029
|
66,305 | 65,198 | 66,305 | 71,947 | ||||||||||||
Term
Loan due 2007
|
- | - | 255,626 | 255,626 | ||||||||||||
Term
Loan due 2012 (1)
|
412,220 | 412,220 | 465,000 | 465,000 | ||||||||||||
Term
Loan due 2012
|
455,000 | 455,000 | - | - | ||||||||||||
Net
premiums on long-term debt
|
6,093 | 6,093 | 9,613 | 9,613 | ||||||||||||
1,890,741 | 1,892,069 | 1,647,667 | 1,658,140 | |||||||||||||
Total
Long-Term Debt Obligations
|
3,395,006 | 3,440,950 | 3,151,932 | 3,258,182 | ||||||||||||
Credit
Facilities
|
123,000 | 123,000 | 100,000 | 100,000 | ||||||||||||
Total
consolidated debt obligations
|
3,518,006 | $ | 3,563,950 | 3,251,932 | $ | 3,358,182 | ||||||||||
Less
fair value swaps of Panhandle
|
- | 1,265 | ||||||||||||||
Less
current portion of long-term debt (2), (3)
|
434,680 | 461,011 | ||||||||||||||
Less
short-term debt
|
123,000 | 100,000 | ||||||||||||||
Total
consolidated long-term debt obligations
|
$ | 2,960,326 | $ | 2,689,656 | ||||||||||||
(1)
|
At
December 31, 2006, this Term Loan was due in 2008. See the
following LNG Holdings
Term Loans discussion for information
related
|
|
to
the extension of the maturity date from April 4, 2008 to June 29,
2012.
|
2013
and
|
||||||||||||||||||||||||
2008
|
2009
|
2010
|
2011
|
2012
|
thereafter
|
|||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||
Southern
Union Company
|
$ | 125,000 | $ | - | $ | 100,000 | $ | - | $ | - | $ | 1,279,265 | ||||||||||||
Panhandle
|
309,831 | 60,623 | 40,500 | - | 857,389 | 616,305 | ||||||||||||||||||
Total
|
$ | 434,831 | $ | 60,623 | $ | 140,500 | $ | - | $ | 857,389 | $ | 1,895,570 | ||||||||||||
(a)
|
Under
the Company’s Long-Term Facility, the consolidated debt to total
capitalization ratio, as defined therein, cannot exceed 65
percent.
|
|
(b)
|
Under
the Company’s Long-Term Facility, the Company must maintain an earnings
before interest, tax, depreciation and amortization interest coverage
ratio of at least 2.00 times.
|
|
(c)
|
Under
the Company’s First Mortgage Bond indentures for the Fall River Gas
division of New England Gas Company, the Company’s consolidated debt to
total capitalization ratio, as defined therein, cannot exceed 70 percent
at the end of any calendar quarter.
|
|
(d)
|
All
of the Company’s major borrowing agreements contain cross-defaults if the
Company defaults on an agreement involving at least $3 million of
principal.
|
Pension
Plans
|
||||||||||||||||
Pre-SFAS
158
|
Pre-SFAS
158
|
SFAS
158
|
||||||||||||||
without
AML
|
AML
|
with
AML
|
adoption
|
Post-SFAS
|
||||||||||||
adjustment
|
adjustment
|
adjustment
|
adjustment
|
158
|
||||||||||||
(in
thousands)
|
||||||||||||||||
Intangible
asset (included in Deferred
charges)
|
$ |
4,883
|
$ |
(1,085)
|
$ |
3,798
|
$ |
(3,798)
|
$ |
-
|
||||||
Pension
liabilities, current (included in Other
|
||||||||||||||||
current
liabilities)
|
-
|
-
|
-
|
13
|
13
|
|||||||||||
Pension
liabilities, noncurrent
(included in
|
||||||||||||||||
Deferred
credits)
|
58,062
|
(12,016)
|
46,046
|
7,066
|
53,112
|
|||||||||||
Accumulated
deferred income taxes (benefit)
|
(16,234)
|
4,128
|
(12,106)
|
(4,107)
|
(16,213)
|
|||||||||||
Accumulated
other comprehensive income (loss),
|
||||||||||||||||
net
of tax
|
(26,711)
|
6,803
|
(19,908)
|
(6,770)
|
(26,678)
|
|||||||||||
Accumulated
other comprehensive income (loss),
|
||||||||||||||||
pre-tax
|
(42,945)
|
10,931
|
(32,014)
|
(10,877)
|
(42,891)
|
|||||||||||
Other
Postretirement Plans
|
||||||||||||||||
Pre-SFAS
158
|
Pre-SFAS
158
|
SFAS
158
|
||||||||||||||
without
AML
|
AML
|
with
AML
|
adoption
|
Post-SFAS
|
||||||||||||
adjustment
|
adjustment
|
adjustment
|
adjustment
|
158
|
||||||||||||
(in
thousands)
|
||||||||||||||||
Prepaid
postretirement costs (included in Deferred
|
||||||||||||||||
charges)
|
$ |
-
|
$ |
-
|
$ |
-
|
$ |
248
|
$ |
248
|
||||||
Postretirement
liabilities, current (included in Other
|
||||||||||||||||
current
liabilities)
|
-
|
-
|
-
|
87
|
87
|
|||||||||||
Postretirement
liabilities, noncurrent (included in
|
||||||||||||||||
Deferred
credits)
|
57,258
|
-
|
57,258
|
(29,402)
|
27,856
|
|||||||||||
Accumulated
deferred income taxes
|
-
|
-
|
-
|
6,750
|
6,750
|
|||||||||||
Accumulated
other comprehensive income (loss),
|
||||||||||||||||
net
of tax
|
-
|
-
|
-
|
22,813
|
22,813
|
|||||||||||
Accumulated
other comprehensive income (loss),
|
||||||||||||||||
pre-tax
|
-
|
-
|
-
|
29,563
|
29,563
|
|||||||||||
Other
|
||||||||||||||||
Pension
Benefits At
|
Postretirement
Benefits At
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Change
in benefit obligation:
|
||||||||||||||||
Benefit
obligation at beginning of period
|
$ | 162,955 | $ | 415,338 | $ | 74,082 | $ | 115,148 | ||||||||
Service
cost
|
2,715 | 7,443 | 1,788 | 2,507 | ||||||||||||
Interest
cost
|
9,388 | 20,889 | 4,053 | 5,556 | ||||||||||||
Benefits
paid, net
|
(9,900 | ) | (19,668 | ) | (2,893 | ) | (4,418 | ) | ||||||||
Medicare
Part D subsidy receipts
|
- | - | 289 | - | ||||||||||||
Actuarial
(gain) loss and other
|
(3,512 | ) | (24,347 | ) | (3,780 | ) | (9,925 | ) | ||||||||
Plan
amendments
|
1,178 | - | 2,734 | 972 | ||||||||||||
Curtailment
recognition
|
- | (28,119 | ) | - | (2,250 | ) | ||||||||||
Settlement
recognition and other (1)
|
- | (208,581 | ) | - | (33,508 | ) | ||||||||||
Benefit
obligation at end of period
|
$ | 162,824 | $ | 162,955 | $ | 76,273 | $ | 74,082 | ||||||||
Change
in plan assets:
|
||||||||||||||||
Fair
value of plan assets at beginning of period
|
$ | 108,633 | $ | 298,289 | $ | 46,233 | $ | 45,509 | ||||||||
Return
on plan assets and other
|
12,796 | 17,187 | 1,494 | 3,203 | ||||||||||||
Employer
contributions
|
16,813 | 28,399 | 9,176 | 14,926 | ||||||||||||
Benefits
paid, net
|
(9,900 | ) | (19,668 | ) | (2,893 | ) | (4,418 | ) | ||||||||
Settlement
recognition and other (1)
|
- | (215,574 | ) | - | (12,987 | ) | ||||||||||
Fair
value of plan assets at end of period
|
$ | 128,342 | $ | 108,633 | $ | 54,010 | $ | 46,233 | ||||||||
Funded
status:
|
||||||||||||||||
Funded
status at measurement date
|
$ | (34,482 | ) | $ | (54,322 | ) | $ | (22,263 | ) | $ | (27,849 | ) | ||||
Contributions
subsequent to measurement date
|
4,025 | 1,197 | 440 | 154 | ||||||||||||
Funded
status at end of period
|
$ | (30,457 | ) | $ | (53,125 | ) | $ | (21,823 | ) | $ | (27,695 | ) | ||||
Amounts
recognized in the Consolidated
|
||||||||||||||||
Balance
Sheet consist of:
|
||||||||||||||||
Noncurrent
assets
|
$ | - | $ | - | $ | 1,418 | $ | 248 | ||||||||
Current
liabilities
|
(13 | ) | (13 | ) | (57 | ) | (87 | ) | ||||||||
Noncurrent
liabilities
|
(30,444 | ) | (53,112 | ) | (23,184 | ) | (27,856 | ) | ||||||||
$ | (30,457 | ) | $ | (53,125 | ) | $ | (21,823 | ) | $ | (27,695 | ) | |||||
Amounts
recognized in Accumulated other
|
||||||||||||||||
comprehensive
loss (pre-tax basis) consist of:
|
||||||||||||||||
Net
actuarial loss (gain)
|
$ | 24,376 | $ | 39,093 | $ | (12,831 | ) | $ | (11,128 | ) | ||||||
Prior
service cost (credit)
|
4,353 | 3,798 | (12,892 | ) | (18,435 | ) | ||||||||||
$ | 28,729 | $ | 42,891 | $ | (25,723 | ) | $ | (29,563 | ) | |||||||
(1)
|
Effective
August 24, 2006, the Company transferred five pension plans and two other
postretirement plans to the buyers of
the assets of the Company's PG Energy natural gas distribution division
and the Rhode Island operations of its New England Gas
Company natural gas distribution
division.
|
Other
|
||||||||||||||||
Pension
Benefits
|
Postretirement
Benefits
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2007
|
2006
|
2007
|
2006
|
|||||||||||||
(In
thousands)
|
||||||||||||||||
Projected
benefit obligation
|
$ | 162,824 | $ | 162,955 | N/A | N/A | ||||||||||
Accumulated
benefit obligation
|
154,950 | 155,876 | $ | 71,571 | $ | 68,033 | ||||||||||
Fair
value of plan assets
|
128,342 | 108,633 | 47,890 | 39,937 | ||||||||||||
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||||||||||||||||||
Years
Ended December 31,
|
Years
Ended December 31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
|||||||||||||||||||
(In
thousands)
|
||||||||||||||||||||||||
Net
Periodic Benefit Cost:
|
||||||||||||||||||||||||
Service
cost
|
$ | 2,715 | $ | 2,599 | $ | 2,550 | $ | 1,788 | $ | 1,890 | $ | 2,908 | ||||||||||||
Interest
cost
|
9,388 | 8,899 | 9,355 | 4,053 | 3,615 | 4,908 | ||||||||||||||||||
Expected
return on plan assets
|
(9,619 | ) | (8,909 | ) | (8,728 | ) | (2,858 | ) | (1,871 | ) | (1,375 | ) | ||||||||||||
Prior
service cost amortization
|
623 | 584 | 782 | (2,809 | ) | (3,011 | ) | (551 | ) | |||||||||||||||
Actuarial
(gain) loss amortization
|
8,029 | 7,236 | 5,364 | (768 | ) | (145 | ) | (163 | ) | |||||||||||||||
Curtailment
recognition
|
- | - | 3,172 | - | - | - | ||||||||||||||||||
Settlement
recognition
|
- | - | (644 | ) | - | - | - | |||||||||||||||||
Transfer
of assets in excess
|
||||||||||||||||||||||||
of
obligations
|
- | - | - | 1,915 | - | - | ||||||||||||||||||
11,136 | 10,409 | 11,851 | 1,321 | 478 | 5,727 | |||||||||||||||||||
Regulatory
adjustment (1)
|
(1,578 | ) | (7,710 | ) | (7,521 | ) | 2,665 | 2,665 | 2,665 | |||||||||||||||
Net
periodic benefit cost
|
$ | 9,558 | $ | 2,699 | $ | 4,330 | $ | 3,986 | $ | 3,143 | $ | 8,392 | ||||||||||||
(1)
|
In
the Distribution segment, the Company recovers certain qualified pension
benefit plan and other postretirement benefit plan costs through rates
charged to utility customers. Certain utility commissions
require that the recovery of these costs be based on the Employee
Retirement Income Security Act or other utility commission specific
guidelines. The difference between these amounts and periodic
benefit cost calculated pursuant to Statement No. 87 is initially deferred
as a regulatory asset and subsequently amortized to periodic benefit cost
over periods, promulgated by the applicable utility commission, in which
this difference will be recovered in
rates.
|
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||||||||||||||||||
Years
Ended December 31,
|
Years
Ended December 31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
|||||||||||||||||||
Discount
rate
|
6.24 | % | 5.77 | % | 5.50 | % | 6.34 | % | 5.78 | % | 5.50 | % | ||||||||||||
Rate
of compensation increase
|
||||||||||||||||||||||||
(average)
|
3.47 | % | 3.24 | % | 3.24 | % | N/A | N/A | N/A | |||||||||||||||
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||||||||||||||||||
Years
Ended December 31,
|
Years
Ended December 31,
|
|||||||||||||||||||||||
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
|||||||||||||||||||
Discount
rate
|
5.77 | % | 5.50 | % | 5.75 | % | 5.78 | % | 5.50 | % | 5.75 | % | ||||||||||||
Expected
return on assets:
|
||||||||||||||||||||||||
Tax
exempt accounts
|
8.75 | % | 8.75 | % | 9.00 | % | 7.00 | % | 7.00 | % | 7.00 | % | ||||||||||||
Taxable
accounts
|
N/A | N/A | N/A | 5.00 | % | 5.00 | % | 5.00 | % | |||||||||||||||
Rate
of compensation increase
|
3.24 | % | 3.24 | % | 3.40 | % | N/A | N/A | N/A | |||||||||||||||
December
31,
|
||||||||
2007
|
2006
|
|||||||
Health
care cost trend rate assumed for next year
|
10.00 | % | 11.00 | % | ||||
Ultimate
trend rate
|
5.13 | % | 4.80 | % | ||||
Year
that the rate reaches the ultimate trend rate
|
2017
|
2013
|
||||||
One
Percentage Point
|
One
Percentage Point
|
|||||||
Increase
|
Decrease
|
|||||||
(In
thousands)
|
||||||||
Effect
on total of service and interest cost
|
$ | 733 | $ | (587 | ) | |||
Effect
on accumulated postretirement benefit obligation
|
$ | 7,082 | $ | (5,754 | ) | |||
Pension
Benefits
|
Other
Postretirement Benefits
|
|||||||||||||||
At
September 30,
|
At
September 30,
|
|||||||||||||||
Asset
Category
|
2007
|
2006
|
2007
|
2006
|
||||||||||||
Equity
securities
|
61 | % | 76 | % | 31 | % | 24 | % | ||||||||
Debt
securities
|
24 | % | 10 | % | 62 | % | 66 | % | ||||||||
Other
- cash equivalents
|
15 | % | 14 | % | 7 | % | 10 | % | ||||||||
Total
|
100 | % | 100 | % | 100 | % | 100 | % | ||||||||
Other
|
Other
|
|||||||||||
Postretirement
|
Postretirement
|
|||||||||||
Benefits
|
Benefits
|
|||||||||||
Pension
|
(Gross,
Before
|
(Medicare
Part D
|
||||||||||
Years
|
Benefits
|
Medicare
Part D)
|
Subsidy
Receipts)
|
|||||||||
(In
thousands)
|
||||||||||||
2008
|
$ | 10,172 | $ | 4,093 | $ | 607 | ||||||
2009
|
10,774 | 4,083 | 684 | |||||||||
2010
|
10,929 | 4,296 | 763 | |||||||||
2011
|
10,854 | 4,831 | 855 | |||||||||
2012
|
12,084 | 5,467 | 809 | |||||||||
2013-2017
|
61,034 | 37,394 | 5,533 | |||||||||
Years
Ended December 31,
|
||||||||||||
Income
Tax Expense
|
2007
|
2006
|
2005
|
|||||||||
(In
thousands)
|
||||||||||||
Current:
|
||||||||||||
Federal
|
$ | 18,458 | $ | 19,798 | $ | 168 | ||||||
State
|
5,654 | 2,251 | 1,062 | |||||||||
24,112 | 22,049 | 1,230 | ||||||||||
Deferred:
|
||||||||||||
Federal
|
62,502 | 74,563 | 43,110 | |||||||||
State
|
8,645 | 12,635 | 5,712 | |||||||||
71,147 | 87,198 | 48,822 | ||||||||||
Total
federal and state income tax
|
||||||||||||
expense
from continuing operations
|
$ | 95,259 | $ | 109,247 | $ | 50,052 | ||||||
Effective
tax rate
|
29.4 | % | 33.5 | % | 24.6 | % | ||||||
December
31,
|
||||||||
Deferred
Income Tax Analysis
|
2007
|
2006
|
||||||
(In
thousands)
|
||||||||
Deferred
income tax assets:
|
||||||||
Alternative
minimum tax credit
|
$ | 13,560 | $ | 8,178 | ||||
Post-retirement
benefits
|
24,320 | 17,673 | ||||||
Pension
benefits
|
6,579 | 13,810 | ||||||
Unconsolidated
investments
|
5,443 | 11,530 | ||||||
Other
|
19,621 | 27,936 | ||||||
Total
deferred income tax assets
|
69,523 | 79,127 | ||||||
Deferred
income tax liabilities:
|
||||||||
Property,
plant and equipment
|
(693,350 | ) | (624,797 | ) | ||||
Investment
in CCE Holdings (Citrus)
|
(34,113 | ) | (18,700 | ) | ||||
Goodwill
|
(15,665 | ) | (14,592 | ) | ||||
Regulatory
liability
|
(2,020 | ) | (2,989 | ) | ||||
Other
|
(16,077 | ) | (35,738 | ) | ||||
Total
deferred income tax liabilities
|
(761,225 | ) | (696,816 | ) | ||||
Net
deferred income tax liability
|
(691,702 | ) | (617,689 | ) | ||||
Less
current income tax assets (liabilities)
|
1,303 | (512 | ) | |||||
Accumulated
deferred income taxes
|
$ | (693,005 | ) | $ | (617,177 | ) | ||
Years
Ended December 31,
|
||||||||||||
Effective
Income Tax Rate Analysis
|
2007
|
2006
|
2005
|
|||||||||
(In
thousands)
|
||||||||||||
Computed
statutory income tax expense
|
||||||||||||
from
continuing operations at 35%
|
$ | 113,389 | $ | 114,215 | $ | 71,102 | ||||||
Changes
in income taxes resulting from:
|
||||||||||||
Valuation
allowance
|
- | - | (11,942 | ) | ||||||||
Dividend
received deduction
|
(28,994 | ) | (10,696 | ) | (8,732 | ) | ||||||
Executive
compensation, non deductible
|
491 | 5,063 | - | |||||||||
State
income taxes, net of federal income tax benefit
|
9,295 | 9,411 | 4,403 | |||||||||
Analysis
of deferred tax accounts
|
- | (7,490 | ) | (4,757 | ) | |||||||
Other
|
1,078 | (1,256 | ) | (22 | ) | |||||||
Actual
income tax expense from continuing operations
|
$ | 95,259 | $ | 109,247 | $ | 50,052 | ||||||
December
31,
|
||||||||
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||
Current
|
$ | 6,772 | $ | 5,098 | ||||
Noncurrent
|
15,209 | 18,632 | ||||||
Total
Environmental Liabilities
|
$ | 21,981 | $ | 23,730 | ||||
|
19. Discontinued
Operations
|
Years
Ended
|
||||||||
December
31,
|
||||||||
2006 (2)
|
2005
|
|||||||
(In
thousands,except per share amounts)
|
||||||||
Operating
revenues
|
$ | 512,935 | $ | 752,549 | ||||
Operating
income (loss)
|
54,662 | (106,073 | ) | |||||
Loss
from discontinued operations (1)
|
(152,952 | ) | (132,413 | ) | ||||
Net
loss available from discontinued
|
||||||||
operations
per share:
|
||||||||
Basic
|
$ | (1.33 | ) | $ | (1.21 | ) | ||
Diluted
|
$ | (1.30 | ) | $ | (1.17 | ) | ||
In
Service
|
||||||||
ARO
Description
|
Date
|
Long-Lived
Assets
|
Amount
|
|||||
(In
thousands)
|
||||||||
Retire
offshore lateral lines
|
Various
|
Offshore
lateral lines
|
$ | 5,539 | ||||
Other
|
Various
|
Mainlines,
compressors and gathering plants
|
1,446 | |||||
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Beginning
balance
|
$ | 10,535 | $ | 8,200 | $ | 5,657 | ||||||
Addition
from Sid Richardson
|
||||||||||||
Energy
Services acquisition
|
- | 885 | - | |||||||||
Incurred
|
2,314 | 1,189 | 2,371 | |||||||||
Settled
|
(907 | ) | (414 | ) | (285 | ) | ||||||
Accretion
expense
|
820 | 675 | 457 | |||||||||
Ending
balance
|
$ | 12,762 | $ | 10,535 | $ | 8,200 | ||||||
|
·
|
items
that do not impact net earnings from continuing operations, such as
extraordinary items, discontinued operations and the impact of changes in
accounting principles;
|
|
·
|
income
taxes;
|
|
·
|
interest;
and
|
|
·
|
dividends
on preferred stock.
|
Years
Ended December 31,
|
||||||||||||
Segment
Data
|
2007
|
2006
|
2005
|
|||||||||
(In
thousands)
|
||||||||||||
Operating
revenues from external customers:
|
||||||||||||
Transportation
and Storage
|
$ | 658,446 | $ | 577,182 | $ | 505,233 | ||||||
Gathering
and Processing
|
1,221,747 | 1,090,216 | - | |||||||||
Distribution
|
732,109 | 668,721 | 752,699 | |||||||||
Total
segment operating revenues
|
2,612,302 | 2,336,119 | 1,257,932 | |||||||||
Corporate
and other
|
4,363 | 4,025 | 8,950 | |||||||||
$ | 2,616,665 | $ | 2,340,144 | $ | 1,266,882 | |||||||
Depreciation
and amortization:
|
||||||||||||
Transportation
and Storage
|
$ | 85,641 | $ | 72,724 | $ | 62,171 | ||||||
Gathering
and Processing
|
59,560 | 47,321 | - | |||||||||
Distribution
|
30,251 | 30,353 | 29,447 | |||||||||
Total
segment depreciation and amortization
|
175,452 | 150,398 | 91,618 | |||||||||
Corporate
and other
|
2,547 | 1,705 | 944 | |||||||||
$ | 177,999 | $ | 152,103 | $ | 92,562 | |||||||
Earnings
(loss) from unconsolidated investments:
|
||||||||||||
Transportation
and Storage
|
$ | 99,222 | $ | 141,310 | $ | 70,618 | ||||||
Gathering
and Processing
|
1,300 | (188 | ) | - | ||||||||
Corporate
and other
|
392 | 248 | 124 | |||||||||
$ | 100,914 | $ | 141,370 | $ | 70,742 | |||||||
Other
income (expense), net:
|
||||||||||||
Transportation
and Storage
|
$ | 1,604 | $ | 3,354 | $ | 571 | ||||||
Gathering
and Processing
|
140 | 1,571 | - | |||||||||
Distribution
|
(1,902 | ) | (2,130 | ) | (2,598 | ) | ||||||
Total
segment other income (expense), net
|
(158 | ) | 2,795 | (2,027 | ) | |||||||
Corporate
and other
|
(725 | ) | 37,123 | (6,214 | ) | |||||||
$ | (883 | ) | $ | 39,918 | $ | (8,241 | ) | |||||
Segment
performance:
|
||||||||||||
Transportation
and Storage EBIT
|
$ | 391,029 | $ | 417,536 | $ | 281,344 | ||||||
Gathering
and Processing EBIT
|
65,368 | 62,630 | - | |||||||||
Distribution
EBIT
|
70,568 | 41,883 | 61,698 | |||||||||
Total
segment EBIT
|
526,965 | 522,049 | 343,042 | |||||||||
Corporate
and other
|
151 | 14,324 | (11,424 | ) | ||||||||
Interest
expense
|
203,146 | 210,043 | 128,470 | |||||||||
Federal
and state income taxes
|
95,259 | 109,247 | 50,052 | |||||||||
Earnings
from continuing operations
|
228,711 | 217,083 | 153,096 | |||||||||
Loss
from discontinued operations before
|
||||||||||||
income
taxes
|
- | (2,369 | ) | (111,588 | ) | |||||||
Federal
and state income taxes
|
- | 150,583 | 20,825 | |||||||||
Loss
from discontinued operations
|
- | (152,952 | ) | (132,413 | ) | |||||||
Net
earnings
|
228,711 | 64,131 | 20,683 | |||||||||
Preferred
stock dividends
|
17,365 | 17,365 | 17,365 | |||||||||
Net
earnings available for common stockholders
|
$ | 211,346 | $ | 46,766 | $ | 3,318 | ||||||
Years
Ended December 31,
|
||||||||
Segment
Data
|
2007
|
2006
|
||||||
(In
thousands)
|
||||||||
Total
assets:
|
||||||||
Transportation
and Storage
|
$ | 4,550,822 | $ | 3,874,318 | ||||
Gathering
and Processing
|
1,709,901 | 1,722,055 | ||||||
Distribution
|
1,020,460 | 1,016,491 | ||||||
Total
segment assets
|
7,281,183 | 6,612,864 | ||||||
Corporate
and other
|
116,730 | 169,926 | ||||||
Total
consolidated assets
|
$ | 7,397,913 | $ | 6,782,790 | ||||
Years
Ended December 31,
|
||||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Expenditures
for long-lived assets:
|
||||||||||||
Transportation
and Storage
|
$ | 591,153 | $ | 244,821 | $ | 189,415 | ||||||
Gathering
and Processing
|
48,633 | 35,101 | - | |||||||||
Distribution
|
44,769 | 47,954 | 84,896 | |||||||||
Total
segment expenditures for
|
||||||||||||
long-lived
assets
|
684,555 | 327,876 | 274,311 | |||||||||
Corporate
and other
|
4,173 | 4,798 | 2,306 | |||||||||
Total
consolidated expenditures for
|
||||||||||||
long-lived
assets
|
$ | 688,728 | $ | 332,674 | $ | 276,617 | ||||||
Percent
of Consolidated
|
||||||||||||||||||||||||
Percent
of Transportation and
|
Company
Total
|
|||||||||||||||||||||||
Storage
Segment Revenues
|
Operating
Revenues
|
|||||||||||||||||||||||
Years
Ended December 31,
|
Years
Ended December 31,
|
|||||||||||||||||||||||
Customer
|
2007
|
2006
|
2005
|
2007
|
2006
|
2005
|
||||||||||||||||||
BG
LNG Services
|
28 | % | 24 | % | 17 | % | 7 | % | 6 | % | 4 | % | ||||||||||||
ProLiance
|
11 | 12 | 16 | 3 | 3 | 4 | ||||||||||||||||||
Ameren
Corp
|
9 | 10 | 11 | 2 | 3 | 3 | ||||||||||||||||||
Other
top 10 customers
|
17 | 19 | 14 | 4 | 5 | 4 | ||||||||||||||||||
Remaining
customers
|
35 | 35 | 42 | 9 | 8 | 10 | ||||||||||||||||||
Total
percentage
|
100 | % | 100 | % | 100 | % | 25 | % | 25 | % | 25 | % | ||||||||||||
Percent
of Gathering and
|
Percent
of Consolidated
|
|||||||||||||||
Processing
Segment Revenues
|
Company
Total Operating Revenues
|
|||||||||||||||
Years
Ended December 31,
|
Years
Ended December 31,
|
|||||||||||||||
Customer
|
2007
|
2006 (1)
|
2007
|
2006 (1)
|
||||||||||||
ConocoPhillips
Company
|
16 | % | 22 | % | 8 | % | 10 | % | ||||||||
BP
Energy Company
|
6 | 11 | 3 | 5 | ||||||||||||
Constellation
Power Source
|
7 | 10 | 3 | 5 | ||||||||||||
Other
top 10 customers
|
34 | 22 | 16 | 10 | ||||||||||||
Remaining
customers
|
37 | 35 | 17 | 17 | ||||||||||||
Total
percentage
|
100 | % | 100 | % | 47 | % | 47 | % | ||||||||
(1)
|
Represents
results from operations for the period subsequent to the March 1, 2006
acquisition.
|
Year
Ended December 31,
|
||||||||||||
Other
Comprehensive Income (Loss)
|
2007
|
2006
|
2005
|
|||||||||
(In
thousands)
|
||||||||||||
Net
Earnings
|
$ | 228,711 | $ | 64,131 | $ | 20,683 | ||||||
Other
Comprehensive Income (Loss) Adjustments:
|
||||||||||||
Change
in fair value of interest rate hedges, net of tax of
$(5,241),
|
||||||||||||
$(745)
and $73, respectively
|
(10,041 | ) | (49 | ) | 108 | |||||||
Reclassification
of unrealized gain on interest rate hedges
|
||||||||||||
into
earnings, net of tax of $(13), $608 and $608, respectively
|
(4 | ) | 967 | 967 | ||||||||
Realized
gain (loss) on interest rate hedges, net of tax of
$(1,488),
|
||||||||||||
$0
and $0, respectively
|
(2,366 | ) | - | - | ||||||||
Reversal
of minimum pension liability related to disposition, net
|
||||||||||||
of
tax of $0, $16,004 and $0, respectively
|
- | 26,331 | - | |||||||||
Minimum
pension liability adjustment, net of tax of $0, $4,128
|
||||||||||||
and
$1,064, respectively
|
- | 6,803 | 1,771 | |||||||||
Change
in fair value of commodity hedges, net of tax of $(775),
|
||||||||||||
$7,466
and $0, respectively
|
(1,279 | ) | 12,360 | - | ||||||||
Reclassification
of unrealized gain on commodity hedges
|
||||||||||||
into
earnings, net of tax of $(2,425), $(4,266) and $0,
repectively
|
(3,997 | ) | (7,084 | ) | - | |||||||
Actuarial
gain and prior service
credit (cost) relating to
|
||||||||||||
pension
and other postretirement benefits,
|
||||||||||||
net
of tax of $1,055, $0 and $0, respectively
|
3,597 | - | - | |||||||||
Reclassification
of actuarial gain and prior service credit
|
||||||||||||
(cost)
relating to pension and other postretirement benefits
|
||||||||||||
into
earnings, net of tax of $1,619, $0 and $0, respectively
|
3,397 | - | - | |||||||||
Total
other comprehensive income (loss)
|
(10,693 | ) | 39,328 | 2,846 | ||||||||
Total
comprehensive income
|
$ | 218,018 | $ | 103,459 | $ | 23,529 | ||||||
Years
Ended December 31,
|
||||||||
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||
Interest
rate hedges, net
|
$ | (14,723 | ) | $ | (2,312 | ) | ||
Commodity
hedges, net
|
- | 5,276 | ||||||
Benefit
Plans:
|
||||||||
Net
actuarial loss and prior service costs, net - pensions
|
(17,907 | ) | (26,678 | ) | ||||
Net
actuarial gain and prior service credit, net - other postretirement
benefits
|
21,036 | 22,813 | ||||||
Total
Accumulated other comprehensive loss, net of tax
|
$ | (11,594 | ) | $ | (901 | ) | ||
Years
ended December 31,
|
|||||||
2007
|
2006
|
2005
|
|||||
Expected
volatility
|
30.11%
to 32.12%
|
32.90%
|
20.57%
to 37.61%
|
||||
Expected
dividend yield
|
2.10%
|
1.43%
|
1.67%
|
||||
Risk-free
interest rate
|
3.70%
to 3.89%
|
4.69%
|
3.76%
to 4.63%
|
||||
Expected
life
|
6.00
to 7.50 years
|
|
6.00
years
|
0.75
to 6.50 years
|
|||
Second
Amended 2003 Plan
|
1992
Plan
|
||||||||||||||||||
Weighted
|
Weighted
|
||||||||||||||||||
Shares
|
Average
|
Shares
|
Average
|
||||||||||||||||
Under
|
Exercise
|
Under
|
Exercise
|
||||||||||||||||
Option
|
Price
|
Option
|
Price
|
||||||||||||||||
Outstanding
January 1, 2005
|
698,522 | $ | 16.83 | 2,390,705 | $ | 12.81 | |||||||||||||
Granted
|
731,349 | 23.52 | 136,608 | 12.75 | |||||||||||||||
Exercised
|
(62,976 | ) | 16.83 | (794,105 | ) | 12.47 | |||||||||||||
Forfeited
|
(77,385 | ) | 16.83 | (473,584 | ) | 12.45 | |||||||||||||
Outstanding
December 31, 2005
|
1,289,510 | $ | 20.62 | 1,259,624 | $ | 13.15 | |||||||||||||
Granted
|
- | (1) | - | - | - | ||||||||||||||
Exercised
|
(121,137 | ) | 17.31 | (521,289 | ) | 13.92 | |||||||||||||
Forfeited
|
(157,894 | ) | 18.23 | (23,139 | ) | 12.92 | |||||||||||||
Outstanding
December 31, 2006
|
1,010,479 | $ | 21.39 | 715,196 | $ | 12.60 | |||||||||||||
Granted
|
717,098 | (2) | 28.48 | - | - | ||||||||||||||
Exercised
|
(98,027 | ) | 19.32 | (176,515 | ) | 10.51 | |||||||||||||
Forfeited
|
(97,875 | ) | 22.95 | (1,979 | ) | 13.03 | |||||||||||||
Outstanding
December 31, 2007
|
1,531,675 | $ | 24.74 | 536,702 | $ | 13.28 | |||||||||||||
Exercisable
December 31, 2005
|
355,259 | 21.85 | 1,147,902 | 13.06 | |||||||||||||||
Exercisable
December 31, 2006
|
533,363 | 22.38 | 715,196 | 12.60 | |||||||||||||||
Exercisable
December 31, 2007
|
565,560 | 22.25 | 536,702 | 13.28 | |||||||||||||||
|
Southern
Union’s common stock in excess of $28.07 for each SAR on the applicable
vesting date.
|
|
Southern
Union’s common stock in excess of $28.48 for each SAR on the applicable
vesting date.
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||
Weighted
Average
|
Weighted
|
Weighted
|
|||||||||||||
Remaining
|
Average
|
Number of
|
Average
|
||||||||||||
Range of Exercise Prices |
Number
of Options
|
Contractual
Life
|
Exercise
Price
|
Options
|
Exercise
Price
|
||||||||||
Second Amended 2003
Plan:
|
|||||||||||||||
16.82
- 20.00
|
|
242,135 |
6.11
years
|
$ | 16.83 | 105,800 | $ | 16.83 | |||||||
20.01
- 25.00
|
572,442 |
7.70
years
|
23.41 | 459,760 | 23.50 | ||||||||||
25.01
- 28.48
|
717,098 |
9.97
years
|
28.48 | - | - | ||||||||||
1,531,675 |
8.51
years
|
$ | 24.74 | 565,560 | $ | 22.25 | |||||||||
1992
Plan:
|
|||||||||||||||
12.63
- 14.66
|
536,702 |
1.50
years
|
$ | 13.28 | 536,702 | $ | 13.28 | ||||||||
536,702 |
1.50
years
|
$ | 13.28 | 536,702 | $ | 13.28 | |||||||||
Number
of
|
Weighted-Average
|
|||||||
Restricted
Shares
|
Grant-Date
|
|||||||
Nonvested
Restricted Stock Equity Units
|
Outstanding
|
Fair-Value
|
||||||
Nonvested
restricted shares at January 1, 2005
|
- | $ | - | |||||
Granted
|
209,903 | 24.15 | ||||||
Vested
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Nonvested
restricted shares at December 31, 2005
|
209,903 | $ | 24.15 | |||||
Granted
|
137,036 | 26.50 | ||||||
Vested
|
(146,335 | ) | 24.17 | |||||
Forfeited
|
(31,820 | ) | 24.44 | |||||
Nonvested
restricted shares at December 31, 2006
|
168,784 | $ | 25.98 | |||||
Granted
|
156,044 | 28.99 | ||||||
Vested
|
(111,322 | ) | 26.67 | |||||
Forfeited
|
(12,336 | ) | 24.96 | |||||
Nonvested
restricted shares at December 31, 2007
|
201,170 | $ | 28.00 | |||||
Number
of
|
Weighted-Average
|
|||||||
Restricted
Stock Liability
|
Grant-Date
|
|||||||
Nonvested
Restricted Stock Liability Units
|
Units
Outstanding
|
Fair-Value
|
||||||
Nonvested
restricted shares at December 31, 2005
|
- | $ | - | |||||
Granted
|
108,869 | 28.07 | ||||||
Vested
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Nonvested
restricted shares at December 31, 2006
|
108,869 | $ | 28.07 | |||||
Granted
|
143,460 | 28.49 | ||||||
Vested
|
(36,283 | ) | 28.07 | |||||
Forfeited
|
(2,744 | ) | 28.07 | |||||
Nonvested
restricted shares at December 31, 2007
|
213,302 | $ | 28.35 | |||||
Quarters
Ended
|
||||||||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||||||
(In
thousands, except per share amounts)
|
||||||||||||||||
Operating
revenues
|
$ | 780,232 | $ | 588,049 | $ | 525,473 | $ | 722,911 | ||||||||
Operating
income
|
129,594 | 87,400 | 96,980 | 113,111 | ||||||||||||
Earnings
from continuing operations
|
78,721 | 50,975 | 45,283 | 53,732 | ||||||||||||
Net
earnings available for common
|
||||||||||||||||
stockholders
|
74,380 | 46,634 | 40,941 | 49,391 | ||||||||||||
Diluted
net earnings per share
|
||||||||||||||||
available
for common stockholders:
|
||||||||||||||||
Continuing
operations
|
$ | 0.62 | $ | 0.39 | $ | 0.34 | $ | 0.41 | ||||||||
Available
for common stockholders
|
$ | 0.62 | $ | 0.39 | $ | 0.34 | $ | 0.41 | ||||||||
Quarters
Ended
|
||||||||||||||||
March
31
|
June
30
|
September
30
|
December
31
|
|||||||||||||
(In
thousands, except per share amounts)
|
||||||||||||||||
Operating
revenues
|
$ | 547,166 | $ | 552,355 | $ | 564,418 | $ | 676,205 | ||||||||
Operating
income
|
102,847 | 69,792 | 69,961 | 112,485 | ||||||||||||
Earnings
from continuing operations
|
73,418 | 16,321 | 11,829 | 115,515 | ||||||||||||
Net
earnings (loss) from discontinued operations
|
24,529 | (2,587 | ) | (174,473 | ) | (421 | ) | |||||||||
Net
earnings (loss) available for common
|
||||||||||||||||
stockholders
|
93,606 | 9,393 | (166,985 | ) | 110,752 | |||||||||||
Diluted
net earnings (loss) per share
|
||||||||||||||||
available
for common stockholders:
|
||||||||||||||||
Continuing
operations
|
$ | 0.60 | $ | 0.10 | $ | 0.06 | $ | 0.92 | ||||||||
Available
for common stockholders
|
$ | 0.82 | $ | 0.08 | $ | (1.42 | ) | $ | 0.92 | |||||||
Consolidated
Financial Statements
|
||||
Years
ended December 31, 2007, 2006 and 2005
|
||||
TABLE
OF CONTENTS
|
||||
|
||||
Page
|
||||
Report
of Independent Registered Public Accounting Firm
|
2
|
|||
Audited
Consolidated Financial Statements
|
||||
Consolidated
Balance Sheets
|
3
|
|||
Consolidated
Statements of Income
|
4
|
|||
Consolidated
Statements of Stockholders' Equity
|
5
|
|||
Consolidated
Statements of Comprehensive Income
|
5
|
|||
Consolidated
Statements of Cash Flows
|
6
|
|||
Notes
to Consolidated Financial Statements
|
7 -
29
|
December
31,
|
December
31,
|
|||||||
2007
|
2006
|
|||||||
(In
thousands)
|
||||||||
ASSETS
|
||||||||
Current
Assets
|
||||||||
Cash
and cash equivalents
|
$ | 3,572 | $ | 15,267 | ||||
Accounts
receivable, billed and unbilled,
|
||||||||
less
allowances of $18 and $282, respectively
|
39,350 | 45,049 | ||||||
Materials
and supplies
|
12,745 | 2,954 | ||||||
Exchange
gas receivable
|
1,729 | - | ||||||
Other
|
2,248 | 1,025 | ||||||
Total
Current Assets
|
59,644 | 64,295 | ||||||
Property,
Plant and Equipment
|
||||||||
Plant
in service
|
4,265,844 | 4,163,082 | ||||||
Construction
work in progress
|
150,742 | 85,746 | ||||||
4,416,586 | 4,248,828 | |||||||
Less
accumulated depreciation and amortization
|
1,401,638 | 1,304,133 | ||||||
Property,
Plant and Equipment, Net
|
3,014,948 | 2,944,695 | ||||||
Other
Assets
|
||||||||
Unamortized
debt expense
|
4,221 | 4,687 | ||||||
Regulatory
assets
|
19,207 | 31,007 | ||||||
Other
|
10,838 | 76,429 | ||||||
Total
Other Assets
|
34,266 | 112,123 | ||||||
Total
Assets
|
$ | 3,108,858 | $ | 3,121,113 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
Liabilities
|
||||||||
Current
portion of long-term debt
|
$ | 44,000 | $ | 84,000 | ||||
Accounts
payable - trade and other
|
33,422 | 25,070 | ||||||
Accounts
payable - affiliated companies
|
8,416 | 2,823 | ||||||
Accrued
interest
|
14,251 | 14,805 | ||||||
Accrued
income taxes
|
7,599 | 2,375 | ||||||
Accrued
taxes, other than income
|
5,437 | 9,332 | ||||||
Exchange
gas payable
|
22,547 | 24,225 | ||||||
Capital
accruals
|
22,636 | 22,185 | ||||||
Dividends
payable
|
42,600 | - | ||||||
Other
|
7,600 | 6,526 | ||||||
Total
Current Liabilities
|
208,508 | 191,341 | ||||||
Deferred
Credits
|
||||||||
Deferred
income taxes, net
|
763,364 | 777,404 | ||||||
Regulatory
liabilities
|
14,842 | 14,256 | ||||||
Other
|
9,202 | 8,129 | ||||||
Total
Deferred Credits
|
787,408 | 799,789 | ||||||
Long-Term
Debt
|
909,810 | 836,882 | ||||||
Commitments
and contingencies (Note 14)
|
||||||||
Stockholders'
Equity
|
||||||||
Common
stock, $1 par value; 1,000 shares authorized, issued and
outstanding
|
1 | 1 | ||||||
Additional
paid-in capital
|
634,271 | 634,271 | ||||||
Accumulated
other comprehensive loss
|
(7,885 | ) | (10,524 | ) | ||||
Retained
earnings
|
576,745 | 669,353 | ||||||
Total
Stockholders' Equity
|
1,203,132 | 1,293,101 | ||||||
Total
Liabilities and Stockholders' Equity
|
$ | 3,108,858 | $ | 3,121,113 | ||||
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
December
31,
|
December
31,
|
December
31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Operating
Revenues
|
||||||||||||
Transportation
of natural gas
|
$ | 495,513 | $ | 485,189 | $ | 476,049 | ||||||
Total
Operating Revenues
|
495,513 | 485,189 | 476,049 | |||||||||
Operating
Expenses
|
||||||||||||
Operations
and maintenance
|
82,058 | 77,941 | 78,829 | |||||||||
Depreciation
and amortization
|
100,634 | 98,653 | 91,125 | |||||||||
Taxes,
other than income taxes
|
29,618 | 34,765 | 34,306 | |||||||||
Total
Operating Expenses
|
212,310 | 211,359 | 204,260 | |||||||||
Operating
Income
|
283,203 | 273,830 | 271,789 | |||||||||
Other
Income (Expenses)
|
||||||||||||
Interest
expense and related charges, net
|
(73,871 | ) | (76,428 | ) | (79,290 | ) | ||||||
Other,
net
|
39,984 | 4,633 | 6,531 | |||||||||
Total
Other Income (Expenses), net
|
(33,887 | ) | (71,795 | ) | (72,759 | ) | ||||||
Income
Before Income Taxes
|
249,316 | 202,035 | 199,030 | |||||||||
Federal
and State Income Tax Expense
|
92,224 | 75,960 | 75,086 | |||||||||
Net
Income
|
$ | 157,092 | $ | 126,075 | $ | 123,944 | ||||||
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
December
31,
|
December
31,
|
December
31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Common
Stock
|
||||||||||||
Balance,
beginning and end of period
|
$ | 1 | $ | 1 | $ | 1 | ||||||
Additional
Paid-in Capital
|
||||||||||||
Balance,
beginning and end of period
|
634,271 | 634,271 | 634,271 | |||||||||
Accumulated
Other Comprehensive Loss
|
||||||||||||
Balance,
beginning of period
|
(10,524 | ) | (13,162 | ) | (15,800 | ) | ||||||
Recognition
in earnings of previously deferred net losses related to derivative
instruments used as cash flow hedges
|
2,639 | 2,638 | 2,638 | |||||||||
Balance,
end of period
|
(7,885 | ) | (10,524 | ) | (13,162 | ) | ||||||
Retained
Earnings
|
||||||||||||
Balance,
beginning of period
|
669,353 | 668,678 | 665,934 | |||||||||
Net
income
|
157,092 | 126,075 | 123,944 | |||||||||
Dividends (1)
|
(249,700 | ) | (125,400 | ) | (121,200 | ) | ||||||
Balance,
end of period
|
576,745 | 669,353 | 668,678 | |||||||||
Total
Stockholders' Equity
|
$ | 1,203,132 | $ | 1,293,101 | $ | 1,289,788 | ||||||
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE INCOME
|
||||||||||||
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
December
31,
|
December
31,
|
December
31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Net
income
|
$ | 157,092 | $ | 126,075 | $ | 123,944 | ||||||
Recognition
in earnings of previously deferred net losses related to derivative
instruments used as cash flow hedges
|
2,639 | 2,638 | 2,638 | |||||||||
Total
Comprehensive Income
|
$ | 159,731 | $ | 128,713 | $ | 126,582 | ||||||
(1) Includes
$42.6 million in Dividends Payable, declared in December 2007, payable in
January, 2008 and which was paid on January 18, 2008. (See Note 7 -
Related Party Transaction)
|
||||||||||||
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
December
31,
|
December
31,
|
December
31,
|
||||||||||
2007
|
2006
|
2005
|
||||||||||
(In
thousands)
|
||||||||||||
Cash
flows provided by operating activities
|
||||||||||||
Net
income
|
$ | 157,092 | $ | 126,075 | $ | 123,944 | ||||||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization
|
100,634 | 98,653 | 91,125 | |||||||||
Amortization
of hedge loss in other comprehensive income
|
2,639 | 2,638 | 2,638 | |||||||||
Amortization
of discount and swap hedge loss in long term debt
|
528 | 527 | 530 | |||||||||
Amortization
of regulatory assets and other deferred charges
|
1,250 | 3,274 | 3,380 | |||||||||
Amortization
of debt costs
|
994 | 1,048 | 1,053 | |||||||||
Deferred
income taxes
|
(12,277 | ) | 18,629 | 12,740 | ||||||||
Allowance
for funds used during construction
|
(4,683 | ) | (1,630 | ) | (1,441 | ) | ||||||
Gain
on sale of assets
|
- | - | (1,236 | ) | ||||||||
Changes
in operating assets and liabilities:
|
||||||||||||
Accounts
receivable
|
5,699 | (3,327 | ) | 403 | ||||||||
Accounts
payable
|
11,950 | (3,316 | ) | (10,567 | ) | |||||||
Accrued
interest
|
(554 | ) | (286 | ) | (324 | ) | ||||||
Accrued
income tax
|
5,224 | 3,247 | (7,204 | ) | ||||||||
Other
current assets and liabilities
|
(8,944 | ) | 18,749 | 3,234 | ||||||||
Other
long-term assets and liabilities
|
74,668 | (24,627 | ) | 36,140 | ||||||||
Net
cash provided by operating activities
|
334,220 | 239,654 | 254,415 | |||||||||
Cash
flows used in investing activities
|
||||||||||||
Capital
expenditures
|
(175,370 | ) | (106,023 | ) | (37,610 | ) | ||||||
Allowance
for funds used during construction
|
4,683 | 1,630 | 1,441 | |||||||||
Proceeds
from sale of assets
|
- | - | 1,715 | |||||||||
Net
cash used in investing activities
|
(170,687 | ) | (104,393 | ) | (34,454 | ) | ||||||
Cash
flows used in financing activities
|
||||||||||||
Dividends
paid
|
(207,100 | ) | (125,400 | ) | (121,200 | ) | ||||||
Net
(payments) borrowings on the revolving credit facilities
|
76,400 | (2,000 | ) | (75,000 | ) | |||||||
Long-term
debt finance costs
|
(528 | ) | - | - | ||||||||
Payments
on long-term debt
|
(44,000 | ) | (14,000 | ) | (14,000 | ) | ||||||
Net
cash used in financing activities
|
(175,228 | ) | (141,400 | ) | (210,200 | ) | ||||||
Net
increase (decrease) in cash and cash equivalents
|
(11,695 | ) | (6,139 | ) | 9,761 | |||||||
Cash
and cash equivalents, beginning of period
|
15,267 | 21,406 | 11,645 | |||||||||
Cash
and cash equivalents, end of period
|
$ | 3,572 | $ | 15,267 | $ | 21,406 | ||||||
Supplemental
disclosure of cash flow information
|
||||||||||||
Interest
paid (net of amounts capitalized)
|
$ | 72,439 | $ | 72,067 | $ | 74,714 | ||||||
Income
tax paid
|
$ | 103,589 | $ | 56,814 | $ | 66,954 | ||||||
(1)
|
Corporate
Structure
|
(2)
|
Significant
Accounting Policies
|
|
Regulatory
Accounting –
Florida Gas’ accounting policies generally conform to Financial
Accounting Standards Board (FASB) Statement No. 71,
Accounting for the
Effects of Certain Types of Regulation (Statement No.
71). Accordingly, certain assets and liabilities that
result from the regulated ratemaking process are recorded that would not
be recorded under GAAP for non-regulated
entities.
|
|
Revenue
Recognition – Revenues consist primarily of fees earned from gas
transportation services. Reservation revenues are based on
contracted rates and capacity reserved by the customers and are recognized
monthly. For interruptible or volumetric based services,
commodity revenues are recorded upon the delivery of natural gas to the
agreed upon delivery point. Revenues for all services are
generally based on the thermal quantity of gas delivered or subscribed at
a rate specified in the contract.
|
|
Because
Florida Gas is subject to FERC regulations, revenues collected during the
pendency of a rate proceeding may be required by the FERC to be refunded
in the final order. Florida Gas establishes reserves for such
potential refunds, as appropriate. There were no reserves for
potential rate refund at December 31, 2007 and 2006,
respectively.
|
|
Derivative
Instruments – The Company follows FASB Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended, (Statement No. 133)
to account for derivative and hedging activities. In accordance
with this statement, all derivatives are recognized on the Consolidated
Balance Sheets
|
|
at
their fair value. On the date the derivative contract is
entered into, the Company designates the derivative as (i) a hedge of the
fair value of a recognized asset or liability or of an unrecognized firm
commitment (a fair value
hedge); (ii) a hedge of a forecasted transaction or the variability
of cash flows to be received or paid in conjunction with a recognized
asset or liability (a
cash flow hedge); or (iii) an instrument that is held for trading
or non-hedging purposes (a trading or non-hedging
instrument). For derivatives treated as a fair value
hedge, the effective portion of changes in fair value is recorded as an
adjustment to the hedged item. The ineffective portion of a
fair value hedge is recognized in earnings if the short cut method of
assessing effectiveness is not used. Upon termination of a fair
value hedge of a debt instrument, the resulting gain or loss is amortized
to earnings through the maturity date of the debt
instrument. For derivatives treated as a cash flow hedge, the
effective portion of changes in fair value is recorded in Accumulated Other
Comprehensive Loss until the related hedge items impact
earnings. Any ineffective portion of a cash flow hedge is
reported in current period earnings. For derivatives treated as
trading or non-hedging instruments, changes in fair value are reported in
current-period earnings. Fair value is determined based upon
quoted market prices and mathematical models using current and historical
data. As of December 31, 2007, the Company does not have any
hedges in place as it is only amortizing previously terminated
hedges.
|
|
Property,
Plant and Equipment – Property, Plant
and Equipment consists primarily of natural gas pipeline and related
facilities and is recorded at its original cost. Florida Gas
capitalizes direct costs, such as labor and materials, and indirect costs,
such as overhead and cost of funds, both interest and an equity return
component (see third following paragraph). Costs of
replacements and renewals of units of property are
capitalized. The original cost of units of property retired are
charged to accumulated depreciation, net of salvage and removal
costs. Florida Gas charges to maintenance expense the costs of
repairs and renewal of items determined to be less than units of
property.
|
|
The
recognition of an allowance for funds used during construction (AFUDC) is
a utility accounting practice with calculations under guidelines
prescribed by the FERC and capitalized as part of the cost of utility
plant. It represents the cost of capital invested in
construction work-in-progress. AFUDC has been segregated into
two component parts – borrowed funds and equity funds. The
allowance for borrowed and equity funds used during construction,
including related gross up, totaled $10.3 million, $3.4 million and $1.4
million for the years ended December 31, 2007, 2006 and 2005,
respectively. AFUDC borrowed is included in Interest Expense
and AFUDC equity is included in Other Income in the accompanying
statements of income.
|
|
Asset
Retirement Obligations – The Company
applies the provisions of FASB Statement No. 143,
Accounting for Asset Retirement Obligations to record a liability
for the estimated removal costs of assets where there is a legal
obligation associated with removal. Under this standard, the
liability is recorded at its fair value, with a corresponding asset that
is depreciated over the remaining useful life of the long-lived asset to
which the liability relates. An ongoing expense will also be
recognized for changes in the value of the liability as a result of the
passage of time.
|
|
FASB Interpretation No. 47,
Accounting for Conditional Asset Retirement Obligations (FIN No. 47) issued by
the FASB in March 2005 clarifies that the term “conditional asset
retirement obligation” as used in FASB Statement No. 143, Accounting for Asset
Retirement Obligations, refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement
are conditional on a future event that may or may not be within the
control of the entity. Accordingly, an entity is required to
recognize a liability for the fair value of a conditional asset retirement
obligation (ARO) when incurred, if the fair value of the liability can be
reasonably estimated. FIN No. 47 provides guidance for
assessing whether sufficient information is available to record an
estimate. This interpretation was effective for the Company
beginning on December 31, 2005. Upon adoption of FIN No.
47, Florida Gas recorded an increase in plant in service and a liability
for an ARO of $0.5 million. This new asset and liability
related to obligations associated with the removal and disposal of
asbestos and asbestos containing materials on Florida Gas’ pipeline
system. The ARO asset at December 31, 2007 had a net book value
of $0.5 million.
|
Year
Ended December 31, 2007
|
Year
Ended December 31, 2006
|
Year
Ended December 31, 2005
|
||||||||||
(In
thousands)
|
||||||||||||
Beginning
balance
|
$ | 481 | $ | 493 | $ | - | ||||||
Incurred
|
- | - | 493 | |||||||||
Settled
|
(37 | ) | (36 | ) | - | |||||||
Accretion Expense
|
27 | 24 | - | |||||||||
Ending
balance
|
$ | 471 | $ | 481 | $ | 493 | ||||||
|
Asset
Impairment – The Company applies the provisions of FASB No. 144, Accounting for
the Impairment or Disposal of Long-Lived Assets, to account for
impairments on long-lived assets. Impairment losses are
recognized for long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows are not sufficient
to recover the assets’ carrying value. The amount of impairment
is measured by comparing the fair value of the asset to its carrying
amount.
|
|
Exchange
Gas – Gas imbalances occur as a result of differences in volumes of
gas received and delivered by a pipeline system. These imbalances due to
or from shippers and operators are valued at an appropriate index
price. Imbalances are settled in cash or made up in-kind
subject to terms of Florida Gas’ tariff, and generally do not impact
earnings.
|
|
Environmental
Expenditures (Note 12) –
Expenditures that relate to an existing condition caused by past
operations, and do not contribute to current or future generation, are
expensed. Environmental expenditures relating to current or
future revenues are expensed or capitalized as appropriate based on the
nature of the cost incurred. Liabilities are recorded when
environmental assessments and/or clean ups are probable and the cost can
be reasonably estimated. Remediation obligations are not discounted
because the timing of future cash flow streams is not
predictable.
|
|
Cash
and Cash Equivalents – Cash equivalents consist of highly liquid
investments with original maturities of three months or
less. The carrying amount of cash and cash equivalents
approximates fair value because of the short maturity of these
investments.
|
|
Materials
and Supplies – Materials and
supplies are valued at the lower of cost or market
value. Materials transferred out of warehouses are priced at
average cost. Materials and supplies include spare parts
which are critical to the pipeline system operations and are valued at the
lower of cost or market.
|
|
Fuel
Tracker – A liability is recorded for net volumes of gas owed to
customers collectively. Whenever fuel is due from customers
from prior under recovery based on contractual and specific tariff
provisions an asset is recorded. Gas owed to or from customers
is valued at market. Changes in the balances have no effect on
the consolidated income of the
Company.
|
|
|
Income
Taxes (Note 4) – Income taxes are accounted
for under the asset and liability method in accordance with the provisions
of FASB Statement No. 109, Accounting for Income
Taxes. Under this method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rate is
recognized in income in the period that includes the enactment
date. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts more likely than not to be
realized.
|
|
Accounts
Receivable –
The Company establishes an allowance for doubtful accounts on
accounts receivable based on the expected ultimate recovery of these
receivables. The Company considers many factors including
historical customer collection experience, general and specific economic
trends and known specific issues related to individual customers, sectors
and transactions that might impact collectibility. Unrecovered
accounts receivable charged against the allowance for doubtful accounts
were $0.3 million, nil and nil in the years ended December 31, 2007, 2006
and 2005, respectively.
|
|
Use
of Estimates
– The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
|
(3)
|
Long
Term Debt
|
Years
|
December
31, 2007
|
December
31, 2006
|
|||||||||||||||||
Due
|
Book
Value
|
Fair
Value
|
Book
Value
|
Fair
Value
|
|||||||||||||||
(In
thousands)
|
|||||||||||||||||||
Citrus
|
|||||||||||||||||||
8.490%
Senior Notes
|
2007-2009
|
$ | 60,000 | $ | 63,572 | $ | 90,000 | $ | 95,011 | ||||||||||
Revolving
Credit Agreement Citrus
|
2012
|
62,400 | 62,400 | - | - | ||||||||||||||
FGT
|
|||||||||||||||||||
9.750%
Senior B Notes
|
1999-2008
|
6,500 | 6,736 | 13,000 | 13,663 | ||||||||||||||
10.110%
Senior C Notes
|
2009-2013
|
70,000 | 82,282 | 70,000 | 82,773 | ||||||||||||||
9.190%
Senior Notes
|
2005-2024
|
127,500 | 158,843 | 135,000 | 167,004 | ||||||||||||||
7.625%
Senior Notes
|
2010
|
325,000 | 353,352 | 325,000 | 348,137 | ||||||||||||||
7.000%
Senior Notes
|
2012
|
250,000 | 277,281 | 250,000 | 271,893 | ||||||||||||||
Revolving
Credit Agreement FGT
|
2007
|
- | - | 40,000 | 40,000 | ||||||||||||||
Revolving
Credit Agreement FGT
|
2012
|
54,000 | 54,000 | - | - | ||||||||||||||
Total
debt outstanding
|
$ | 955,400 | $ | 1,058,466 | $ | 923,000 | $ | 1,018,481 | |||||||||||
Current
portion of long-term debt
|
(44,000 | ) | (84,000 | ) | |||||||||||||||
Unamortized
Debt Discount and Swap Loss
|
(1,590 | ) | (2,118 | ) | |||||||||||||||
Total
long-term debt
|
$ | 909,810 | $ | 836,882 | |||||||||||||||
December
31, 2007
|
||||
Year
|
(In
thousands)
|
|||
2008
|
$ | 44,000 | ||
2009
|
51,500 | |||
2010
|
346,500 | |||
2011
|
21,500 | |||
2012
|
387,900 | |||
Thereafter
|
104,000 | |||
$ | 955,400 | |||
(4)
|
Income
Taxes
|
December
31, 2007
|
December
31, 2006
|
|||||||
(In
thousands)
|
||||||||
Deferred
income tax asset
|
||||||||
Regulatory
and other reserves
|
$ | 5,554 | $ | 8,595 | ||||
5,554 | 8,595 | |||||||
Deferred
income tax liabilities
|
||||||||
Depreciation
and amortization
|
759,576 | 742,566 | ||||||
Deferred
charges and other assets
|
- | 27,981 | ||||||
Regulatory
costs
|
4,717 | 9,298 | ||||||
Other
|
4,625 | 6,154 | ||||||
768,918 | 785,999 | |||||||
Net
deferred income tax liabilities
|
$ | 763,364 | $ | 777,404 | ||||
Year
Ended December 31, 2007
|
Year
Ended December 31, 2006
|
Year
Ended December 31, 2005
|
||||||||||
(In
thousands)
|
||||||||||||
Current
Tax Provision
|
||||||||||||
Federal
|
$ | 99,083 | $ | 52,135 | $ | 53,526 | ||||||
State
|
5,418 | 5,196 | 8,820 | |||||||||
104,501 | 57,331 | 62,346 | ||||||||||
Deferred
Tax Provision
|
||||||||||||
Federal
|
(14,531 | ) | 15,863 | 11,079 | ||||||||
State
|
2,254 | 2,766 | 1,661 | |||||||||
(12,277 | ) | 18,629 | 12,740 | |||||||||
Total
income tax expense
|
$ | 92,224 | $ | 75,960 | $ | 75,086 | ||||||
Year
Ended
December
31, 2007
|
Year
Ended
December
31, 2006
|
Year
Ended
December
31, 2005
|
||||||||||
(In
thousands)
|
||||||||||||
Statutory
federal income tax provision
|
$ | 87,261 | $ | 70,712 | $ | 69,661 | ||||||
State
income taxes, net of federal benefit
|
4,986 | 5,176 | 6,813 | |||||||||
Other
|
(23 | ) | 72 | (1,388 | ) | |||||||
Income
tax expense
|
$ | 92,224 | $ | 75,960 | $ | 75,086 | ||||||
Effective
Tax Rate
|
37.0 | % | 37.6 | % | 37.7 | % | ||||||
(5)
|
Employee
Benefit Plans
|
Pre-FASB
158
|
FASB
158 adoption adjustment
|
Post-FASB
158
|
||||||||||
(in
thousands)
|
||||||||||||
Prepaid
postretirement benefit cost (non-current) (Note 10)
|
$ | (721 | ) | $ | 3,423 | $ | 2,702 | |||||
Regulatory asset | 1,951 | (1,951 | ) | - | ||||||||
Regulatory
liability
|
- | (1,472 | ) | (1,472 | ) | |||||||
Year
Ended December 31, 2007
|
Year
Ended December 31, 2006
|
|||||||
(In
thousands)
|
||||||||
Change
in Benefit Obligation
|
||||||||
Benefit
obligation at the beginning of period
|
$ | 5,795 | $ | 6,665 | ||||
Service
cost
|
37 | 46 | ||||||
Interest
cost
|
296 | 312 | ||||||
Actuarial
gain
|
(320 | ) | (691 | ) | ||||
Retiree
premiums
|
415 | 427 | ||||||
Benefits
paid
|
(1,029 | ) | (964 | ) | ||||
CMS
Medicare Part D Subsidies Received
|
108 | - | ||||||
Benefit
obligation at end of year
|
5,302 | 5,795 | ||||||
Change
in Plan Assets
|
||||||||
Fair
value of plan assets at the beginning of period
|
8,497 | 7,840 | ||||||
Return
on plan assets
|
336 | (37 | ) | |||||
Employer
contributions
|
380 | 1,231 | ||||||
Retiree
premiums
|
415 | 427 | ||||||
Benefits
paid
|
(1,029 | ) | (964 | ) | ||||
Fair
value of plan assets at end of year (1)
|
8,599 | 8,497 | ||||||
Funded
Status
|
||||||||
Funded
status at the end of the year
|
$ | 3,297 | $ | 2,702 | ||||
Amount
recognized in the Consolidated Balance Sheets
|
||||||||
Other
assets - other (Note 10)
|
$ | 3,297 | $ | 2,702 | ||||
Regulatory
liability (Note 11)
|
(3,390 | ) | (1,472 | ) | ||||
Net
asset (liability) recognized
|
$ | (93 | ) | $ | 1,230 | |||
|
(1) Plan
assets at December 31, 2007 and 2006 include the amounts of assets
expected to be received from the Enron Trust of $6.8 million and $6.5
million, respectively, including a 5 percent annual investment return
based on estimate.
|
Year
Ended
December
31, 2007
|
Year
Ended
December
31, 2006
|
Year
Ended
December
31, 2005
|
||||||||||
Discount
rate
|
6.09 | % | 5.68 | % | 5.50 | % | ||||||
Health
care cost trend rates
|
10.00 | % | 11.00 | % | 12.00 | % | ||||||
graded
to 5.20% by 2017
|
graded
to 4.85% by 2013
|
graded
to 4.65% by 2012
|
||||||||||
Year
Ended December 31, 2007
|
Year
Ended December 31, 2006
|
Year
Ended December 31, 2005
|
||||||||||
(In
thousands)
|
||||||||||||
Service
cost
|
$ | 37 | $ | 46 | $ | 71 | ||||||
Interest
cost
|
296 | 312 | 490 | |||||||||
Expected
return on plan assets
|
(414 | ) | (402 | ) | (352 | ) | ||||||
Recognized
actuarial gain
|
(230 | ) | (223 | ) | (174 | ) | ||||||
Net
periodic (benefit) cost
|
$ | (311 | ) | $ | (267 | ) | $ | 35 | ||||
Year
Ended
December
31, 2007
|
Year
Ended
December
31, 2006
|
Year
Ended
December
31, 2005
|
||||||||||
Discount
rate
|
5.68 | % | 5.50 | % | 5.75 | % | ||||||
Rate
of compensation increase
|
N/A | N/A | N/A | |||||||||
Expected
long-term return on plan assets
|
5.00 | % | 5.00 | % | 5.00 | % | ||||||
Health
care cost trend rates
|
11.00 | % | 12.00 | % | 12.00 | % | ||||||
graded
to 4.85% by 2013
|
graded
to 4.65% by 2012
|
graded
to 4.75% by 2012
|
||||||||||
One
Percentage Point Increase
|
One
Percentage Point Decrease
|
|||||||
(In
thousands)
|
||||||||
Effect
on total service and interest cost components
|
$ | 15 | $ | (13 | ) | |||
Effect
on postretirement benefit obligation
|
$ | 240 | $ | (215 | ) | |||
December
31, 2007
|
December
31, 2006
|
|||||||
Equity
securities
|
31 | % | 0 | % | ||||
Debt
securities
|
69 | % | 0 | % | ||||
Cash
and cash equivalents
|
0 | % | 100 | % | ||||
Total
|
100 | % | 100 | % | ||||
Years
|
Expected
Benefits Before Effect of Medicare Part D
|
Payments
Medicare Part D
|
Net
|
|||||||||
(In
thousands)
|
||||||||||||
2008
|
$ | 551 | $ | 96 | $ | 455 | ||||||
2009
|
594 | 99 | 495 | |||||||||
2010
|
614 | 101 | 513 | |||||||||
2011
|
625 | 101 | 524 | |||||||||
2012
|
624 | 100 | 524 | |||||||||
2013
- 2017
|
2,935 | 454 | 2,481 |
(6)
|
Major
Customers and Concentration of Credit
Risk
|
Year
Ended December 31, 2007
|
Year
Ended December 31, 2006
|
Year
Ended December 31, 2005
|
||||||||||
(In
thousands)
|
||||||||||||
Florida
Power & Light Company
|
$ | 195,622 | $ | 200,592 | $ | 181,486 | ||||||
TECO
Energy, Inc.
|
80,815 | 80,192 | 76,059 | |||||||||
December
31, 2007
|
December
31, 2006
|
|||||||
(In
thousands)
|
||||||||
Florida
Power & Light Company
|
$ | 15,130 | $ | 15,065 | ||||
TECO
Energy, Inc.
|
6,201 | 6,161 | ||||||
(7)
|
Related
Party Transactions
|
|
The
Company provided natural gas sales and transportation services to El Paso
affiliates at rates equal to rates charged to non-affiliated customers in
the same class of service. Revenues related to these
transportation services were approximately nil, $1.0 million and $4.5
million in the years ended December 31, 2007, 2006 and 2005,
respectively. The Company’s gas sales were immaterial in the
years ended December 31, 2007, 2006 and 2005. Florida Gas also
purchased transportation services from Southern in connection with its
Phase III
|
|
Expansion
completed in early 1995. Florida Gas contracted for firm
capacity of 100,000 Mcf/day on Southern’s system for a primary term of 10
years, to be continued for successive terms of one year each year
thereafter unless cancelled by either party, by giving 180 days notice to
the other party prior to the end of the primary term or any yearly
extension thereof. The amount expensed for these services
totaled $6.8 million, $6.6 million and $6.3 million in the years ended
December 31, 2007, 2006 and 2005,
respectively.
|
(8)
|
Regulatory
Matters
|
(9)
|
Property,
Plant and Equipment
|
December
31, 2007
|
December
31, 2006
|
|||||||
(In
thousands)
|
||||||||
Transmission
plant
|
$ | 2,970,560 | $ | 2,859,920 | ||||
General
plant
|
28,540 | 24,970 | ||||||
Intangibles
|
31,196 | 25,726 | ||||||
Construction
work-in-progress
|
133,824 | 85,746 | ||||||
Acquisition
adjustment
|
1,252,466 | 1,252,466 | ||||||
4,416,586 | 4,248,828 | |||||||
Less:
Accumulated depreciation and amortization
|
(1,401,638 | ) | (1,304,133 | ) | ||||
Property,
Plant and Equipment, net
|
$ | 3,014,948 | $ | 2,944,695 | ||||
(10)
|
Other
Assets
|
December
31, 2007
|
December
31, 2006
|
||||||
(In
thousands)
|
|||||||
Ramp-up assets, net
(1)
|
$ | 11,616 | $ | 11,928 | |||
Fuel
Tracker
|
2,295 | 11,747 | |||||
Cash
balance plan settlement (Note 5)
|
2,326 | 4,185 | |||||
Environmental
non-PCB clean-up cost (Note 12)
|
1,147 | 1,000 | |||||
Other
miscellaneous
|
1,823 | 2,147 | |||||
Total
Regulatory Assets
|
$ | 19,207 | $ | 31,007 | |||
December 31, 2007
|
December
31, 2006
|
||||||
(In
thousands)
|
|||||||
Long-term
receivables (Note 14)
|
$ | 2,859 | $ | 71,648 | |||
Other
post employment benefits (Note 5)
|
3,297 | 2,702 | |||||
Preliminary
survey & investigation
|
3,021 | 996 | |||||
FERC
ACA fee
|
1,061 | 839 | |||||
Other
miscellaneous
|
600 | 244 | |||||
Total
Other Assets - other
|
$ | 10,838 | $ | 76,429 | |||
(11)
|
Deferred
Credits
|
December
31, 2007
|
December
31, 2006
|
||||||
(In
thousands)
|
|||||||
Balancing
tools (1)
|
$ | 11,413 | $ | 12,154 | |||
Other
post employment benefits (Note 5)
|
3,390 | 1,472 | |||||
Other
miscellaneous
|
39 | 630 | |||||
Total
Regulatory liabilities
|
$ | 14,842 | $ | 14,256 | |||
December
31, 2007
|
December
31, 2006
|
||||||
(In
thousands)
|
|||||||
Post
construction mitigation costs
|
$ | 1,686 | $ | 2,073 | |||
Deferred
compensation
|
889 | 1,090 | |||||
Environmental
non-PCB clean-up cost reserve (Note 12)
|
1,337 | 1,423 | |||||
Taxes
Payable
|
3,116 | 1,664 | |||||
Asset
retirement obligation (Note 2)
|
471 | 481 | |||||
Other
miscellaneous
|
1,703 | 1,398 | |||||
Total
Deferred Credits - other
|
$ | 9,202 | $ | 8,129 | |||
(12)
|
Environmental
Reserve
|
(13)
|
Accumulated
Other Comprehensive Loss
|
Year
Ended
|
Year
Ended
|
Year
Ended
|
||||||||||
December
31, 2007
|
December
31, 2006
|
December
31, 2005
|
||||||||||
(In
thousands)
|
||||||||||||
Interest
rate swap loss on 7.625% $325 million note due 2010
|
$ | 1,873 | $ | 1,872 | $ | 1,872 | ||||||
Interest
rate swap loss on 7.0% $250 million note due 2012
|
1,228 | 1,228 | 1,228 | |||||||||
Interest
rate swap gain on 9.19% $150 million note due 2005-2024
|
(462 | ) | (462 | ) | (462 | ) | ||||||
Total
|
$ | 2,639 | $ | 2,638 | $ | 2,638 | ||||||
Termination
Date
|
Amortization
Period
|
Original
Gain/(Loss)
|
December
31, 2007
|
December
31, 2006
|
|||||||||
(In
thousands)
|
|||||||||||||
Interest
rate swap loss on 7.625% $325 million note due 2010
|
December
2000
|
10
years
|
$ | (18,724 | ) | $ | (5,461 | ) | $ | (7,334 | ) | ||
Interest
rate swap loss on 7.0% $250 million note due 2012
|
July
2002
|
10
years
|
(12,280 | ) | (5,579 | ) | (6,807 | ) | |||||
Interest
rate swap gain on 9.19% $150 million note due 2005-2024
|
November
1994
|
20
years
|
9,236 | 3,155 | 3,617 | ||||||||
Total
|
$ | (7,885 | ) | $ | (10,524 | ) | |||||||
(14)
|
Commitments
and Contingencies
|