Energy Transfer LP (ET) 2002 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Southern Union third quarter Investor Relations conference call. At this time all participants are in a listen only mode. Following the formal presentation, Instructions are given -- will be given for the question and answer session.If anyone requires assistance at any time during the conference please press the star followed by the zero. As a reminder, this conference is being recorded Wednesday, May 1st, 2002. I would now like to turn the conference over to Richard Marshall Treasurer and Director of Investor relations with SOuthern Union Company. Please go ahead, sir.

Good afternoon. This is Rick Marshall, Treasurer and Director of Investor relations for Southern Union Company. I would like the thank you for joining us today for our fiscal year 2002, third quarter earnings conference call. With me today is Tom Karam, Southern Union's President and Chief Operating Officer and Dave Kvapil our Executive Vice President and Chief Financial Officer. By now each of you should have received a copy of our earnings release, if you have not it's available on our Web site at www.southernunionco.com by fax copy by calling 570-829-8928 Also a replay of this call will be available through May 8th, 2002 by dialing 800-405-2236 and referring to conference number 467365. I also welcome those joining us by the way of the live Webcast. Our reply of the Webcast will be available for thirty days on our Website. Today, we will be discussing our fiscal 2002 ,third quarter earnings and the status of our on going cash improvement plan. Following this call we'll have sometime for questions and if there are any further questions after inclusion of this call feel free to call me directly at 570-829-8662 Before beginning today I would like the caution you that many of the statements contained may be based on management's currents estimates and projections about the industry in which the company operates. These statements are not guarantees of future performance and involve risk. Also, company undertakes no obligation to update publicly any forward-looking statements, as results of new information, future events or or otherwise. Such statements are intended to be covered by the Safe Harbor provisions of the securities act of 1933 and the securities exchange act of 1934. I would also refer you to the cautionary statement regarding forward look statement in the company's 10-K as well as in today's earning release. At this time I'll turn the call over to Tom Karam, President and Chief Operating Officer with Southern Union Company.

Thanks, Rick and thanks to all of you for participating in today's call.I'd like to do today is to start with an overview of our earnings today and then talk a little bit more in specifics about what is behind them and then turn the program over to Dave Kvapil to get a little more detailed. For those of you who saw our press release this morning, there was alittle bit of a tongue in cheek quote from me that said "That although we can't control mother our results do show that we can control our costs." and that's a good lead in to say that we're generally very pleased with the results that we reported this morning. We continue to remain keenly focused on improving our efficiency without sacrificing safety or our service levels. There are still further steps which we're evaluating that could enhance our operations in future quarters. With each step we take our financial statements will continue to become more transparent and cleaner for those of you who need to review them and analyze them. While we're gratified by the successful execution of our cash flow improvement plan it's a now our intent to find ways to build shareholder value from this more stable platform. By way of explaining that a little bit I think if you exclude the one time charges from last year's results and particularly let me talk about this year. If you exclude the one time charges from we took in earlier quarters and do some weather normalization I think that you'll find that our multiples are no longer off the charts but rather you'll see that we're very much in the lower half of the mainstream of our sector and that is very much one of our intended goals from all of our efforts. As it relates to our balance sheet, I think you'll see that the cash flow improvement plan has in large measure begun to deliver our intended results. We paid down about $200 million in long-term debt. We are now for the first time in years generating an increasing level of free cash flow and free cash flow is critical to our ability to continue to build shareholder value, and we expect that number will continue to grow. I would like to turn to our utility operations where the heavy lifting has been done to deliver these numbers and where we still have some issues that need to be addressed. Clearly in New England, we have two issues that can impact our company. With respect to our filed rate case there is a proposed settlement in which we agree the reduce our rates by $3.9 million. Now that agreement is coupled with improved rate design. Increased rate of return percentages for the company as well as the beginnings of performance base rate making. This settlement is currently working its way through the public hearing process and we're cautiously optimism that it can be finalized soon. Although the nominal value included in the settlement is an actual rate decrease we're very comfortable in way it's structured in as up much as we get to offset part of that with merger related savings and further integrated cost savings, so that the net earnings affect on that will not be nearly that number. Secondly, we're still negotiating with one of our labor unions of Steel Workers International union in Providence, to resolve what are now a small handful of continued disputed issues. We very much want this situation resolved. We want these skilled and dedicated employees back on the job as soon as possible. And we're remaining diligent, in trying to have these discussion move as quickly as we can. To get to that point. In Missouri, we've been making great strides in improving our service quality statistics and at the same time establishing a direct dialog with the Public Service Commission. Which we hope will lead to an increasingly cooperative relationship. We have had some positive signs of [LAY] that particularly at the staff level, some of the things that we've been saying that we need to work together on are beginning to hit home, so that we have reasons to be optimistic there. In Texas and Pennsylvania we've continued to have success in managing our costs while being recognized as providing superior service. All in all I think our new management team is beginning to gets its arms around our utility operations and feeling very comfortable that we can manage these company efficiently, for those of you that want an update, on your legislation with Southwest Gas and with One Oak, I can tell you that we continue to engage in settlement discussions. The date we have not reached a deal although we're hopeful for progress so we continue to have dialogue with these parties. As you know, the judge has rude on several motions and as a result we have we're only a plaintiff in the remaining cases that are scheduled to be tried in October. If I can, I would like to jump back to talk about the cash flow improvement plan to add some detail. To date, we've divested all non-core assets in New England and Pennsylvania . There are still some pipeline and propane assets in Texas and most [INAUDIBLE] trading [INAUDIBLE] Which we have not yet sold although we continue to work hard toward that end. In addition we still own about 1.3 million shares of cap stone that we will sell with market conditions permit. And those two issues right there, capsulate the remaining non-core assets that we have as a company that we're interested in devesting. We're still evaluating our current IT platforms to determine how best to support our diverse operations. This is the one major area of the cash flow improvement plan which has not yet been implemented and from which we will expect to see future costs benefits. We have completed all of the function decentralization as well as our benefit consolidation, our airplane [INAUDIBLE], our early retirement, our reductions in force and we're nearly complete with standardizing our purchasing practicing. Much of that sound [MONVAIN], it is that that will drive our efficiency expectations. In conclusion, these results confirm the strength and focus of our new management team, as well as commitment to drive earnings, cash flow and [HEADS] as the results shareholder value even higher then it is today.We look forward to continued improvements in our results. Well not lose our focus. And at this point, what I'd like to do is to turn the call over to Dave Kvapil our Chief Financial Officer to get behind the numbers and set the stage for any questions that you all may have, Thank you . David.

Thank you, Tom. Good afternoon. As noted in our earnings release as well as in the supplementary release that we included in a filed form AK with the SEC earlier today, Net income increased this quarter to eighty-two cents per share compared with seventy-four cents per share for the same quarter in 2001. Excluding the impact of a one time net of gain of $6. million on the sale of investment securities in the March 31, 2001 quarter, the comparable earnings were sixty-two cents per share in 2001. So if you compare one to one basis, we were sixty-two cents in 2001 and eighty-two cents in 2002 . Despite these improved earnings weather still had a significant impact on the results this quarter. Weather throughout our service territories averaged less than 90% of normal reducing our bottom line by $11 million or twenty-one cents per share, Had we had normal weather earnings this quarter, would have likely exceeded a dollar per share. That aside, our results reflect significant reductions in operating and maintenance expenses as well as lower interests costs. Operating expense reductions which are about $15 million year over year for this quarter are the results of the restructuring and reorganization efforts initiated during our first quarter. In addition bad debt expenses were $7 million lower than in the comparable quarter last year. This is a by-product of the warmer winter that we had this year and the lower gas cost. We expect that operation and the maintenance cost will continue to be further reduced in future quarters. Interests expense reductions are the result of lower interest rates. About four hundred basis points less than in the prior year on our term and revolving facilities. As well as the reductions in our outstanding balances on both the term and the revolving facilities. As Tom mentioned earlier, year over year our outstanding debt balance has been reduced by over $200 million. All of which has resulted in reduced interests cost of about $7 million pretax or seven cents per share. In addition our results reflect reduced amortization expense of $5 million. Or nine cents per share due to our adoption of FAS-142 at the beginning of the fiscal year. The elimination of this non-deductible expense has also reduced our effective tax rate in calculating our net income. Lastly the impact of the MGE rate case which was in effect as of August of 2001, contributed about $3 million or five cents per share during this quarter. In after tax income. This resulted from increased base customer charges and other new non-commodity related revenues. The company's cash flow from operations before working capital changes was $1.19 per share for this quarter ended March 2002. Which is a 9% improvement over the prior year's of a $1.09 per share. Free cash flow and we'll define that as earnings before interest and taxes less the capital expenditures and excluding the unusual one time gain from losses was $77 million this quarter or $1.45 per share versus $66 million or $1.20 per share in the prior year an improvement over 20%. All in all our results during the past quarter as well as the results for the year to date reflect our continued efforts to focus on cost containment and free cash flow improvements. I expect that our ability to continue to maintain and reduce controllable cost will extend into fiscal 2003. Rick.

At this time, I'd like to open the call to participants for a question and answer session.

Thank you, sir. Ladies and gentlemen, at this time we will begin the question and answer session. If you would like to ask a question, please press the star followed by the one. If you would like to decline from our polling process, please press the star followed by the two.you will hear a three tone prompt acknowledging your selection. The questions will be polled in the order they are received. If you are using a speaker equipment, you will need to lift the hand set before pressing the number. One moment please for our first question. Our first question comes from Casey Alexander, Please state your company affiliation.

Hi. From Guilford Securities, First of all , great quarter fantastic. Secondly, Dave, what is the outstanding debt balance against at the end of the quarter?

I've got that right here, in the AK on the balance sheet. Hold on a second. We're looking at long-term debt and cap lease of $799 million and then our long-term debt is $451 million but we're in the process serve working with our banks right now to renegotiate our term loan. So that should be reclassified into a long-term category at June of 2002. In addition to that we have $130 million under our revolving facilities at March 31. That hasn't been further reduced since March.

And further reduced by about $70 million since March.

Okay. You answered most of the questions that I had in your -- presentation. So thank you.

Thank you, Sir. Ladies and gentleman, at this time if there are any additional questions, please press the star followed by the one. As a reminder if your using speaker equipment, you will need to lift the hand set before pressing the numbers. Our next question comes from Steve Allen, Please state your company affiliation.

It's FSA Investment, Tulsa OK.. Can you define for me your free cash flow again.

We take it as earnings before interest in taxes less the Cap-X but I also back out the unusual items and we had an unusual item in the comparable quarter of March 2001 the prior year.

Okay. Thank you.

Thank you, sir. Ladies and gentlemen at this time if there are any additional questions, please press the star followed by the one. Management, at this time there are no further questions. Please continue with any further statement.

I'd like to thank everybody for participating today. I hope the lack of questions is due to the fact that everyone is well satisfied with the presentation and with the results we reported today and you can rest assured that we will spend the next quarter working as diligently as we have the last quarter to report even better numbers next quarter. Thank you very much. Appreciate your loyalty to Southern Union.

Thank you, Sir. This does conclude the Southern Union third quarter Investor relation conference call.As a reminder, if you would like to listen to a replay of today's teleconference, Please dial 1-800-405-2236 you will need to enter access code 467365. On behalf of Southern Union Company we would like to thank you for your participation on today's teleconference. You may now disconnect.