Energy Transfer LP (ET) 2004 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to your quarter three 2004 Southern Union Company earnings conference call. My name is Lis and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will have - we will be facilitating a question and answer session towards the end of the conference. If at any time during the call, you require assistance, simply key star, followed by zero and then operator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn your presentation over to your host for today's call. Mr. Jack Walsh, Director of Investor Relations. Please go ahead, sir.

Thank you Lis. Good afternoon. This is Jack Walsh. I would like to thank your for joining us for Southern Union's fiscal 2004 third quarter earnings call. Joining me on the call are Tom Karam, Southern Union's President and Chief Operating Officer, David Kvapil, Executive Vice President and Chief Financial Officer, John Graft, Vice President and Corporate Controller, Rick Marshall, Vice President and Treasurer, as well as other members of Southern Union and Panhandle Energy's management team. A replay of this call will be available through Wednesday May 5, by dialing 888-286-8010 and entering passcode 847-33587. I would like to welcome those also joining us by way of our live Web cast. A replay of the Web cast will be available on our Web site at www.southernunionco.com. If you had not yet received a copy of our earnings release, you may request a copy by calling 570-829-8928 or you may obtain it from our Web site. Today, we will be discussing our third quarter ended March 31, 2004 and significant events. Following our presentation, we will be happy to address any questions you may have. If you have any further questions after the conclusion of the call, please contact me directly at 570-829-8662. Before beginning, I would like to caution you that many of the statements contained in our call may be based on management's current expectations, estimates, and projections about the industry in which the company operates. These statements are not guarantees of future performance and involve risks. Also, the company undertakes no obligation to update publically any forward-looking statements as a result of new information, future events, or otherwise. Such statements are intended to be covered by the Safe Harbor provisions of the Security Act of 1933 and Securities Exchange Act of 1934. I would also refer you to precautionary statement regarding forward-looking information in the company's 10-K as well as in today's new release. I will now turn the call over to Tom Karam, Southern Union Company's President and Chief Operating Officer for a brief overview of the quarter and recent events.

Thanks Jack. Good afternoon to everybody and thank you for joining us on today's call. As Jack said, this morning, we issued a press release, where we announced our third quarter fiscal year earnings, which were $71.026m or $0.96 a share from continuing operations versus a prior year of $46.200m or $0.79 of share. That represents a 22% increase in earnings per share from continuing operation. And I would note that prior year's numbers include little bit more than $17m from the gain on the sale of our Texas operation, which we closed on January 1 of 2003. You know, as we discussed in the press release, the drivers that make up this 22% increase with a strong and stable performance of our pipeline in LNG operations, as well as solid results in our East Coast LDC operation. Our Missouri Gas Energy subsidiary did underperform for the quarter in part due to weather and in part because we need rate relief for which we filed in November. For the first time since May of 2001, when I was named the President, we reported earnings that are largely driven by operating results and not materially altered by non-recurring items and from the company's perspective, that is a huge victory for us and we hope from your perspective, it is satisfying to you, if you review the press release this morning, it is very transparent and I would call it plain-vanilla, which is very good result for us. Also, in this morning's press release, we refined our previously given fiscal year '04 earnings guidance towards the higher end of that guidance, to now reflect our view that we will earn in fiscal year '04, somewhere between a $1.35 and a $1.40 per share. I would like now to turn the call over to our CFO, David Kvapil to provide some greater detail behind the numbers and then when he is finished, I will offer some color on our operation as well as certain other initiatives that we have underway. David?

Thank you Tom. Good afternoon. As Tom mentioned, I'll repeat, the company reported third quarter net income from continuing operations of $71m or $0.96 per common share, that's on a fully diluted basis. This compares with 2003's net income from continuing ops of $46.2m or $0.79 per share. Additional information and detail on these results may be found in Form 8-K filed with the SEC earlier today. That filing is also available on our website. These results reflect a 54% increase in net earnings from continuing operations with a 22% increase in net earnings per share. The earnings improvement was principally impacted by Panhandle Energy's contribution, which positively impacted earnings by $35m or $0.47 per share in this quarter. Overall weather had minimal impact on earnings between periods. As Tom previously mentioned, net income for the prior-year quarter ended March 31, 2003, also included a net after-tax gain on the sale of our previously Texas operations of $17.6m or $0.30 a share. Let me provide a little more insight into our numbers and the impact from the company's two principal operating segments. Those segments being our gas transportation, storage and LNG operation through our Panhandle Energy Division and our gas distribution operations in Missouri, Pennsylvania, Rhode Island and Massachusetts. Our transportation, storage and LNG segment Panhandle Energy continues to exceed our initial expectations and again was a significant contributor to our earnings during this quarter. Our purchase by Southern Union in June 2003, the quarter-over-quarter net income at Panhandle increased 14% due mainly to decreases in both interest costs and operating and maintenance expenses. Various O&M costs were reduced almost $4m or 7% in quarter-over-quarter comparisons. Interest cost on debt, debt specific to Panhandle decreased from $19.9m to $12.1m mainly due to Panhandle's debt refinancing during the latter part of 2003.

Quarter-over-quarter revenues also improved. Weather throughout our distribution service areas during the quarter ended March 31, 2004, was about 101% of normal. This compares with 2003's weather, which was about 104% of normal. Our Missouri LDC operations experienced weather that was only 96% of normal during this quarter. As a result, our LDC throughput and margins were down slightly for the quarter-over-quarter comparison. Our LDC operations also experienced increases in several operating expenses when compared with last year. Certain employee benefits including pension, post-retirement and medical expenses were up about $2m or $0.03 per share in this quarter. Because of the deterioration in our pension plan investment values over the past several years as a result of the market as well as a discount rate, the expected increase in the pension expense was included in our earnings guidance as were certain medical expense increases. Despite LDC margin decreases, the related revenues were up significantly as a result of increased gas cost. As such bad debt expense also increased by about $2m or $0.03 per share during this quarter. However, I believe the company's LDC receivables are adequately reserved at this time. The company's interest expense on outstanding debt increased quarter-over-quarter. That includes the additional debt acquired in the Panhandle Energy acquisition. Excluding that debt as well as the recent issuance of $125m in equity-linked securities, our debt levels have been reduced by almost $334m since June of 2003. That debt reduction evidences our commitment to the rating agencies to strengthen our balance sheet and to solidify our investment rates status. As of March 31, 2004, our debt-to-cap ratio was 62%. At December 2003 it was at 65% and back in June of 2003 immediately following the Panhandle acquisition, we were a debt-to-cap of 71%. So, we have made significant improvement in that criteria just over the last nine months. Again we remain committed to and expect to be a debt-to-capital ratio of 55% at this time next year. The company's cash flow before working capital changes was $1.99 per share for the quarter ended March 31, a 27% improvement over prior year's cash flow of $1.57 per share from continuing ops. Free cash flow from continuing ops was a $117m or $1.63 per share in the quarter ended March 31, 04 versus $78.3m or $1.37 per share in 2003. Free cash flow being defined as net earnings, cost depreciation, and amortization, less Capex and adjusted per actual income taxes paid versus income taxes approved. Our free cash flow definition excludes any Capex associated with the various LNG project expansion. As noted in the 8-K that I referred to earlier, we fully expect our free cash flow to exceed $250m for the year ending June 30, 2004 of which we are committed to reducing our outstanding debt balance. We are also on track with our 2004 Capex budget of approximately $150m, which excludes the LNG project expansion. Our budget is roughly split 50% for LDCs and 50% for our transportation and stores operation at Panhandle . The company is in full compliance under Sarbanes-Oxley because of the recent extension of the section IV of four documentation compliance, Southern Union is now thereby granted and extension until fiscal year end June 2005. Lastly and I'll reiterate Tom's earlier comment, based on our third quarter results and our earnings expectations for the fourth quarter. We have narrowed our fiscal 2004 guidance to $1.35 to $1.40 per share from our previous range of $1.28 to $1.43 per share. I'll now turn the call back over to Tom?

Thanks David. I would like to turn a little bit now to operations and talk in some general terms and then get little bit more specific. We had a fairly routine quarter in which PG energy and New England Gas experienced slightly colder than normal weather and Missouri Gas Energy has slightly warmer than normal weather. Coming out of winter as David said we are comfortable that our LDC's are adequately reserved for bad debts, which is always an issue in the LDC business. Our Capex program is on target, we are coming out of winter with a very solid safety and liability spending of maintenance throughout the winter months, and we are on target as we are gearing up for the traditional construction season in our LDC operation. We had a high volume of calls in our call centers this winter and again with the exception of Missouri, New England and Pennsylvania handled them quite well. We had a few hiccups in Missouri that we've addressed by acquiring some new software that will allow us to have a more efficient response time there, and we are continuing to focus on that effort. Notwithstanding our view that Missouri has traditionally been an under performing division. We have always committed the capital required to make it the highest service performing division we can and we'll continue that commitment. In our pipeline in LNG operation activities continue to be positive an ahead of plan. Panhandles revenues were stronger than the prior year partly due to the loan business, which we have talked about on earlier calls. Partly due to timing of certain revenues and also a slight increase in utilization. The next contract of size that comes due on the pipes is November of '05 and while it a long way away we've already begun some early discussions with that counter party with the expectations that we'll have a successful completion there. And to that end let me just make a comment because I know in the market place a lot of people focus on the average length of contract and Robert O. Bond our Senior Vice President of marketing at Panhandle in highlighted to me a pretty interesting fact that I want to pass along to every body, and that is the customers that we have at Panhandle and Trunkline, have our customers for decades. There is very longstanding and solid relationship between Panhandle and our LDC, and LDC afficlate customers. We have not doubt that that very strong and solid realtionship with them, there is a very long standing and solid relationship between Panhandle in our LBC and LBC affiliate customers, and we have no doubt that that is very strong and solid relationship will continue into the future. Heading into the summer months at Panhandle, both Panhandle and Trunkline Gas are 100% contracted. Actually Trunkline is 90 plus percent contracted and looking further ahead into the winter of '04, '05, both pipes are already 100% committed. At Trunkline LNG, during the past quarter, we received 12 delivery ships for the quarter. Year-to-date we received deliveries of 63 ships, which is about eight ships ahead of our plan. The average send out year-to-date at the Trunkline LNG facility has been about 606 million dekatherms a day with a peak day delivery of 1.1 billion dekatherms a day. So, from an operational standpoint with the exception of the results from MGE, all of our divisions are performing well. We'll continue to be vigilant about improving our Missouri Gas Energy results, which leads to the next topic of conversation and that is the Missouri rate case. As you know, we filed initially in early November and then revised our filing shortly thereafter for plus $54m rate release. The Missouri Public Service Commission staff just filed their, I guess, rebuttal case or their case in our proceeding, which proposes a $330,000 rate increase, and this filling also proposes based on the staff filing, a return on equity of between 8.5% and 9.5%. We were not at all surprised by this filing. The extreme positioning that the staff has historically taken, I guess, this turned them out to standard operating procedure in Missouri. It's our continued position that portions of their case are fatally float and cannot withstand scrutiny. We've already identified areas of a defect in air that they have acknowledged and have already changed, which revised their position from a $330,000 rate increase to a revised initial position of a $3.7m rate increase. We'll proceed with the case we filed and we'll vociferously argue our entitlement to a substantial rate increase. As we have said before, this case will be fully adjudicated by early October prior to the beginning of the next winter heating-season. On our last call, we discussed the expansion project that LNG and as the Trunkline moved the pipeline. As of today, those projects remain on schedule and on budget. The FERC approval for the Phase II LNG expansion should be received sometime in September of this year. While we had previously thought we would get that approval a bit sooner, it nonetheless does not delay or affect our construction schedule at all. Last week on April 20, Panhandle Eastern Pipe Line announced the scheduling of an open season for potential customers of a proposed expansion of its monthly lateral pipeline. This proposed extension, which would include 124 miles of 30-inch pipe from Grant County, Indiana into Cincinnati, Ohio; with offer about 500 million a day of capacity, and its planned to be in service by November of 2006. This announcement which is designed to gauge the level of interest, which in turn will drive our ability to make an important decision as we model, what our projected return of investment would be on a project of this type, is moving forward nicely. While it is still very early in the open season period, we have seen an active and encouraging response to our announcement. It will be not until sometime after the conclusion of the open season period in mid-May that we will evaluate whether or not to proceed with this project. So, in closing I'd once again like to reiterate our confidence in the strength and stability of our operation. We have shown a material improvement as Dave Kvapil mentioned in our balance sheet. We expect to continue to outperform our prior cash flow and earnings numbers, and most importantly we've firmly established the foundation of solid business fundamentals and predictable earnings and cash flows, which should translate into enhanced shareholder value in the near time and over time. With that, we would be happy to open the call to questions from you and the listening audience.

Ladies and gentlemen, at this time if you wish to ask a question or make a comment, please key star followed by one on your touchtone telephone. If your question has been answered or you simply wish to remove yourself from queue, please key star followed by two. Your first question comes from the line of Nick O' Grady of Gemco capital. Please go ahead sir.

Hi guys.

Hello.

You guys mentioned you thought it will be 55% debt to cap next year. Is that a goal or is that your target debt-to-cap, and if so, would you consider dividend in cash?

Nick, I appreciate the question. It is both a goal, objective, target. It is something that we are committed to doing. We have previously said that we are not going to evaluate any dividend policy change until we've delivered on all of our commitments and one of the commitments we made to the rating agencies is that of being at 55% debt-to-cap sometime next year.

Okay. What about, other question, on bad debt balance. You mentioned it is up $2m. Do you guys have the absolute number?

Dave Kvapil has that number. John has that number.

The absolute number for the quarter.

The absolute number is about $3.5m.

And that is driven by the revenues. For most of the -- David, both our division as we bill the customer, we take a percent of that and apply through our bad debt reserve as a result of the higher GAAP cost this quarter which increases the amount that we filled and that increased the amount of debt reserved. Separate from that, then we analyze it to determine if that is appropriate and I am confident that our reserve is adequate at this time.

Okay, one final question. For the Panhandle expansion, have you guys and forgive me if I don't remember this. Did you guys give a number in terms of what the cost to expand that would be?

Are you talking about the monthly lateral expansion.

Yes.

We've not yet given a cost. The modeling and engineering for that project is largely going to be driven by the level of interest free debt, what type of interest and so it is premature to be at that point.

Okay, thanks a lot guys.

Okay, thank you.

Your next question comes from the line of David Schanzer of Janney Montgomery Scott. Please go ahead sir.

Hi guys. Congratulations on a great quarter.

Thank you.

Couple of questions. With regard to the 55% debt-to-equity ratio, how much further can -- do you expect interest expense be reduced from the 12 -- roughly $12m that you are at now.

Well David, I don't know that we can expect interest rates to drop any further. We've been pretty aggressive in recasting our balance sheet at the Southern Union and at the Panhandle level. I think that well might be pretty much dry for us in terms of any further improvement. So, I wouldn't expect any improvement to have a material impact on our going forward numbers.

And David, the number you referred to at $12m. That's strictly at the Panhandle subsidiary.

Okay. That's...

That's a good point David.

I also -- I guess it depends on when you plan to do some of this debt reduction. If you do it now, it will probably affect the number a little bit better. Second question has to do with the capex. You mentioned $150m this year. How much of that $150m for the utilities?

It's split about 50-50 David. I think about $75m of that is at the Panhandle operation excluding the LNG expansion project. And about $75m of that is at the LVC. And as I said nine months into our fiscal year, we are pretty much on target to be on budget.

Okay, and a perfectly related question. At the LBC's in the aggregate, your entire system. How many new customers do you expect to add this year?

Probably about a little bit more than 1%, but I'd say 1.25% net. So, if we have a million customers, what's that, about 10,000, 12,000 customers.

Okay great. Thanks.

Thank you.

Your next question comes from the line of Nancy Doyle of MetLife. Please go ahead ma'am.

Thank you. Certainly appreciate the progress you made on debt reduction. Could you remind me what your appetite might be for acquisition?

Nancy, we have historically been a transaction-oriented company. And I think as we evaluate what opportunities exist in the market place, we take -- pull the dynamic in a disciplined view. We will maintain a very narrow focus on opportunities in the market place that would relate to natural gas and regulated natural gas only, so that any opportunities that would present themselves, we would evaluate if they were pipelined LBC or storage and to the extend that we decided to evaluate any of these, we would evaluate them with the -- I guess the

pre-existing condition that they would have to be accretive to earnings, accretive to cash flow and that we would be able to finance them in a manner that is not detrimental to our balance sheet, because that the one intractable position we take is that we want to remain investment growth.

Thank you

Thank you.

Your next question comes from the line of Gordon Howald of Credit Lyonnais. Please go ahead sir.

Hi guys.

Hi Gordon.

You had stated the 55% of the cap number, are you assuming asset sales to get there, because we just come up as you know a little bit short?

Yes, we are sorry you do.

Assuming asset sales in it to get there --

No, no we are not to any great extent. And we've talked about the Sea Robin before, we are still not gotten anywhere near the number that we are comfortable with and even if we did it's not a material number, so our internal projections and commitment and comfort was hitting that 55% debt-to-cap do not rely on material assets.

Right. Just to know if you want any update from the rating agencies or --

We have not had any significant discussions with the rating agencies since we -- last were there in February.

Got you. One last question if I could, the $55m rate increase in Missouri, the staff you said is now at 3.7m, what's the difference between your requests and where the staff is right now? I mean it's very common to have to have those big gaps. I thought you have some expenditures that you were specifically trying there get recovery of. If you can give us little color, that would be great?

Yes. I don't know if there is specific expenditures. Rick Marshall is our point person on that and he is sitting right next to me and I will just allow him to give you the pretty accurate color behind that. Rick?

Gordon, not surprisingly the biggest issues relate to return on common equities that the company feels it is entitled to versus the opposing parties position, and in addition to that, there is quite a difference with respect to what the appropriate capital structure is of the company for purposes of determining rates. There is some significant differences in the rate base proposed by the company versus that which is proposed by the opposing parties and in addition I guess that the next large issue would be depreciation expense that would be captured through raise. So, when you look at all those for in the aggregate you come up with a significant difference among the parties and then there are a number of smaller issues that also result in a difference in the opinion of what the revenue requirements should be.

And you are still looking for a 1Q05?

That would be October of '04, which is the first quarter of '05. That's right. No, no that's second quarter of '05. Right, second quarter of fiscal year '05.

Will you change your fiscal year anytime soon to your colander year.

We've said before that's under serious consideration we haven't made any decisions on that, but our view is that there seems to be a lot of merit in changing to a calendar year.

Great, thanks a lot. I appreciate it.

Thank you

Your next question come the line of Jeff Gildersleeve of Millennium Partners. Please go ahead sir.

Hi good afternoon.

Hi Jeff.

Just wanted to, I mean we are nearing the end of your fiscal year here and looking into '05, you mentioned the free cash flow coming in this year and the associate debt pay down, wondering if you could just conceptually give us an idea of how things was going into the next fiscal year and then if you could also sort of remind us where we will start to see some of the pipeline and LMG projects start the layer into their earnings place.

Sure. I think there are some pretty good questions that deserve revisiting here on the call. Let's fast forward to fiscal year 2005 cash flows. I think we said today that we expect to achieve $250m in free cash flow for 2004, the only difference other than earnings between '04 and '05 would be the one-time working capital adjustments that we benefited from in '04, which we characterized somewhere in the $60m to $80m range, something around that. So, to the extent that you back that out, you're probably talking about free cash flow in '05 of the $180m to $200m number. We've been pretty vocal about saying that between now and fiscal year 2007 that we expect to have double-digit earnings growth, and we've also been pretty vocal about saying that it is not a linear growth pattern that 2005 will be flat relative to '06 and '07, because it is the year during which we are completing construction of the LNG expansions in the loop which will be the primary drivers in addition to the MGD rate case for that substantial earnings growth. So that's what I would expect for '05. Fiscal year '06, the L&G Expansions would be coming on in the second half of fiscal year '06. We said that December 31st of '05 is when we expect Phase I to come on line, a couple of months later we expect Phase II to come on line. The Trunkline Loop should come on line in July of '05, which is really the beginning of fiscal year '06. Although the revenues, I think will start to flow fully, probably in that second quarter of '06 - the fiscal year '06. It's kind of confusing to discuss fiscal and calendar all the time, which is one of the positive components of our evaluation to convert to calendar year.

Right, and again your analysis still assumes - you gave an EBIT figure of gross margins on those projects.

Yes. We gave a revenue number of $80m, and I think we said that substantially the significant portion of that, I don't know whether we said 90% or not, but of that revenue number falls to the EBITDA line. None of that has changed, because Jeff as you recall, those expansion projects are fully contracted. So that fortunately for us and for our shareholders, that's not a moving target. We've already in the ground with respect to those projects.

Sure. And that's '05, I mean assuming that there's some rate relief in Missouri, and also you've mentioned paying down with a lot of free cash flow. I mean - we should expect to pick up on those two items. Is there anything else on the other side that we should think about offsetting that.

No. I don't think there's anything in '05 that would be an offset to the net interest rate reductions that we should expect from the debt pay down. I would remind you, and the other listeners though that in fiscal year '04, we had a one-time pickup on the mark-to-market accounting in our debt of about $0.12, I think it was early on, and that may be one of the large drivers, while we've been saying that the growth rate from '04 to '05 might be flat, it's only slightly higher, and that our double-digit earnings growth rate is not linear through '07.

Right. So, when the projects hit in fiscal year '06 or at the end of calendar year '05, that's when they start to kick in.

That's when the cash significantly more.

Okay. And using something out there, we should be able to, using the present value today, double-digit earnings growth to that of point '06, '07.

I think that's correct.

Okay.

And I don't want you to hang up thinking that we are telling you '05 is going to be a bad year. I just don't want you to hang up the phone thinking that '05 is going to be identical to '06 and '07 as it relates to its growth characteristics.

Absolutely.

Okay. Thanks.

Thanks.

Your next question comes from line of Mathew George of Ivory capital. Please go ahead sir.

Hi guys, congratulations for the quarter. I just had a quick question as I was going through the distribution part of the business and I am trying to understand the sort of, the impact of not having had your rate case yet in Missouri, because as I was going through the numbers it looks like some of the short fall came kind bellow the operating margin line and really in the kind of higher operating maintenance in general and I think you mentioned we have some higher medical expenses and in pension that I am assuming is in that number. Was there any thing else in there any bad some thing that will normalize once you get your rate case or is the rate case really only impacts up above the operating margin lines?

No actually the rate case will impact above the operating margin line and bellow the line, I think if you look at what we previously said we need to have an improved rate design which would provide for us some insulation from weather volatility and that could be done in form of some weather mitigation clause as well as in more stable higher fixed customer charge which fixes margin. So, that would address the above margin line.

Above the line.

In the bellow margin lines as a standard in any rate case. We have to give what our test year costs are, which are impacted by pension, medical as well depreciation, which has been a, I don't want to say furious bone of contention between us and the commission but it has been a largely discussed issue with us. So, I think that there will be positive impact above and bellow that line.

Okay. All right that makes sense, thanks a lot.

Your next question comes from the line of Ben of Luminous Management, please go ahead sir.

I just have to clarify on the I guess the growth from of 5 to set of 4, 5 to 6, when you talk about double -digit growth is that CAGR through from now to enter that so that there's sort of I guess just to clarify that's CAGR from now till then not necessarily from meeting that in O5' to O6' there is double-digit growth but that from 04 to 05 there is none.

I don't need to talk that question Ben but I certainly wasn't that sophisticated in my analysis of the double-digit earnings growth the way I looked at the models internally here was I looked at it what our earnings per share would be this year and I looked if our models has to what it be in fiscal year O7' and we did some map those numbers and we came with double-digit earnings growth.

Okay that's the answer I guess I am looking for. And then also in terms of your cost savings you mentioned that was a goal of $15m where do you stand on that?

That's a pretty interesting question because neither David nor I mentioned it in our prepared remarks I think which is telling, because in our view that integration is largely and complete and that's yesterday's news for us. We said $15m I think we have got most of it in the bank there, couple timing issues as I it relates to some IT conversions that we are going to intentionally differ until September/October, but you should not expect any additional material synergies to flow through the P&L that are not already there.

Okay and then in terms of the I guess that the cash flow projections and difference of numbers those talked about for O5', does that include any assumption on the Missouri rate case?

It does.

It does.

And I know you want me to tell you but I am not going to.

Okay, that's it thank you.

Your final question is a follow up from Gordon A. Howald of Credit Lyonnais, please go ahead.

I will try not to make you angry this time Tom. Lets talk about our $75m working capital recovery in $70 deferred tax recovery in fiscal O4' you tell us sort of where you stand at this point on those numbers.

I think those number Gordon and you did not get me angry. Those numbers are components of the $250m free cash flow number that we talked about earlier right, so there included in a component. I guess if you back into it if you take our revised earnings guidance $1.35 to $1.40. There is no change in the differed tax numbers to speak up, is that correct Rick?

That's correct and the only thing that I would add is that we did receive some tax refund that aggregated about little over $10m or so. And that would have changed that number.

Yes. That would have changed the working capital number. We suspect that they were coming anyway by the end of this fiscal year.

I guess the answer, Gordon, is other than that $10m tax refund there is no material change in our previous delineation of the cash flow component.

Will go through the numbers. Thanks.

Okay. Thank you.

You do have one last question from Mr. Casey Alexander, Gilford Securities. Please go ahead.

Thank you for letting me slip in. I don't mean to keep coming back to this point, but presumably you have done this dance with Missouri before given the length of the time that you've owned them I'll give you a mutual fund disclaimer that past performances no guarantee of future results, how has it worked out you know as a percentage of what's your firepower in the past, or is that relevant?

I don't know that it is relevant; it's public information in terms of whatever settlements there were. I haven't really worked out all the percentages because they had different components of both cash and non-cash but typically just a back of the envelope assessment might be 35% to 40% of the request has been settled for but again I don't know that it is relative or comparable to our situation today because Southern Union had different requirements and characteristics in the past as it related to its leverage its need for liquidity and the timing of those rate increases. We believe very strongly that we need to have a better rate design; we need to have some commitment from the Missouri Public Service Commission that demonstrates that we are going to earn a reasonable return on the very substantial capital that we continue to invest in that state. There is a finite amount of capital that's available to us and any company and what exists today is the competition for that capital among our other divisions and to the extent that we earn a substantially lower return on invested capital in Missouri, then Missouri is going to come out on the short-end as it relates to competition for that capital. And we can have that and I know that the people of Missouri don't want that. We understand that there is always the adversarial relationship between making an investment, earning a return and keeping rates fare and reasonable, but as it relates to the staff's approach to this, we think that there is ever increasing evidence that the staff is taking an expansive view of their regulatory mission. And we need to bring back to reality, the focus on safe, reliable service at fair and just rates that provides an adequate return for the company investing that money in Missouri. I apologize for getting on my here, but as it relates to the staff in Missouri, they are very nice people that have a view that we don't believe reflects the economic realities that exist in the world today. And we will argue that case to its proper conclusion. Now, that's a long-winded answer to say that, yes we've settled in past with 35% to 40% but I would not hold your breath waiting for us to do that again.

Fair enough.

Thank you.

Okay.

You have no further questions in queue gentlemen; I turn it back to you.

Well, thank you very much everybody for listing and thank you for your attention to Southern Union and hopefully we'll talk to you all again next quarter.

Ladies and gentlemen that concludes your conference for today. We thank your participation, and have a great day.