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Spectra Energy Reports First Quarter 2010 Results


News provided by

Spectra Energy Corp

May 04, 2010, 06:30 ET

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HOUSTON, May 4 /PRNewswire-FirstCall/ --

  • Ongoing net income from controlling interests of $342 million, $0.53 earnings per share (EPS), compared with $210 million, $0.33 EPS, in the prior year quarter.
  • Quarter positively affected by earnings from expansion projects and stronger commodity prices.
  • Continued successful execution of capital expansion plan:
    • Received approval from Canada's National Energy Board for the Fort Nelson North processing facility, and
    • Placed into service T-North and North Maxhamish Loop projects in western Canada.

(Logo: http://www.newscom.com/cgi-bin/prnh/20061030/CLM051LOGO )

Spectra Energy Corp (NYSE: SE) reported 2010 first quarter net income from controlling interests of $358 million, or $0.55 diluted EPS, compared with $298 million, $0.47 diluted EPS, in the prior year quarter. Ongoing net income from controlling interests for the 2010 quarter was $342 million, or $0.53 diluted EPS, versus $210 million, $0.33 diluted EPS, in the prior year quarter.

"We achieved very good first quarter results, which reflect sound performance from each of our businesses and the benefit of improved commodity prices. This quarter's results have given investors a very clear picture of the robust benefits of Spectra Energy's broad-based portfolio of natural gas infrastructure assets," said Greg Ebel, president and chief executive officer, Spectra Energy Corp.

"We continue to successfully execute on more than $3 billion in expansion projects that are fueling our 8 to 10 percent annual earnings growth through 2012."

SEGMENT RESULTS

U.S. Transmission            

U.S. Transmission reported first quarter 2010 earnings before interest and taxes (EBIT) of $247 million, compared with $217 million in first quarter 2009. The segment benefited from business expansion projects previously placed into service, including Maritimes & Northeast Pipeline Phase IV, Steckman Ridge Storage, Northern Bridge, Algonquin J-2 Expansion, and Moss Bluff and Egan Storage projects.

Distribution

Distribution reported first quarter 2010 EBIT of $146 million, compared with $152 million in first quarter 2009. The decrease is mainly due to lower customer usage, primarily driven by weather which was more than 10 percent warmer than the same period last year. This decrease was substantially offset by the effect of a stronger Canadian dollar.

Western Canada Transmission & Processing

Western Canada Transmission & Processing reported first quarter 2010 EBIT of $119 million, compared with $81 million in first quarter 2009. The segment benefited from improved results in the base gathering and processing business, primarily driven by higher contracted volumes from expansion programs, including West Doe, South Peace Pipeline and Fort Nelson. The segment also benefited from higher frac spreads at the Empress natural gas liquids (NGL) business as well as the effect of a stronger Canadian dollar.

Field Services

Field Services reported first quarter 2010 ongoing EBIT of $99 million, compared with $15 million in first quarter 2009. The increase in ongoing earnings was primarily driven by higher commodity prices. During first quarter 2010, crude oil averaged approximately $79 per barrel, compared with approximately $43 per barrel in the prior year quarter, and NYMEX natural gas averaged approximately $5.30 per million British thermal unit (MMBtu) versus $4.89 per MMBtu during the same period in 2009. The NGL to crude relationship averaged 58 percent during the first quarter 2010 versus 56 percent during the prior year quarter.

The prior year reported earnings of $150 million included a special item of $135 million related to a pre-tax recognition of a deferred gain.

DCP Midstream paid distributions of $75 million to Spectra Energy during the first quarter.

Other

"Other" reported net costs of $14 million in first quarter 2010, compared with net costs of $24 million in first quarter 2009, reflecting lower corporate costs during the current quarter.

Interest Expense

Interest expense was $159 million in first quarter 2010, compared with $150 million during the prior year quarter.

Income Taxes

First quarter 2010 income tax expense from continuing operations was $97 million, compared with $139 million reported in first quarter 2009. The effective tax rate was 21 percent in first quarter 2010, compared with 31 percent in first quarter 2009.  The lower effective tax rate is primarily due to favorable audit settlements totaling $24 million and lower Canadian tax rates.

Special Items Affecting Spectra Energy's EPS for the Quarters Include:

(in millions, except per-share amounts)


Pre-tax Amount

Tax Effect

Net Income –Controlling Interests Impact

EPS Impact






First Quarter 2010

$          –

$          –

$          –

$          –






First Quarter 2009





  Gain on Units

           Previously Issued

           by DCP Partners

$      135

$      (50)

$       85

$     0.14

Total Special Items

$      135

$      (50)

$       85

$     0.14

Reconciliation of Reported to Ongoing Net Income – Controlling Interests

(in millions)


Quarters Ended

March 31,


2010

2009

Net Income – Controlling Interests as Reported

$       358

$       298

Adjustments to Reported Net Income – Controlling Interests:



Special Items

–

(85)

Discontinued Operations

(16)

(3)

Ongoing Net Income – Controlling Interests

$       342

$       210

Reconciliation of Reported to Ongoing Diluted EPS


Quarters Ended

March 31,


2010

2009

Diluted EPS as Reported

$         0.55

$         0.47

    Special Items

–

(0.14)

    Discontinued Operations

(0.02)

–

Diluted EPS, Ongoing

$       0.53

$         0.33


Additional Information

Additional information about first quarter 2010 earnings can be obtained via the Spectra Energy Web site: www.spectraenergy.com.

The analyst call is scheduled for today, Tuesday, May 4, 2010, at 9:00 a.m. CT. The webcast can be accessed via the Investors Section of Spectra Energy's Web site or the conference call can be accessed by dialing (888) 252-3715 in the United States or Canada, or (706) 634-8942 for International. The conference code is "67797453" or "Spectra Energy Quarterly Earnings Call."

Please call five to ten minutes prior to the scheduled start time. A replay of the call will be available until August 6, 2010, by dialing (800) 642-1687 with conference ID 67797453. The international replay number is (706) 645-9291, with above conference ID.  A replay and transcript also will be available by accessing the Investors Section of the company's Web site.

Non-GAAP Financial Measures

We use ongoing net income and ongoing diluted EPS, which are non-GAAP financial measures as they represent net income (controlling interests) and diluted EPS, adjusted for special items and discontinued operations, as measures to evaluate operations of the company. Special items represent certain charges and credits which we believe will not be recurring on a regular basis, and discontinued operations do not represent our ongoing core business. We believe that the presentation of ongoing net income and ongoing diluted EPS provide useful information to investors, as it allows them to more accurately compare our ongoing performance across periods.

The primary performance measure used by us to evaluate segment performance is segment EBIT from continuing operations, which at the segment level represents earnings from continuing operations (both operating and non-operating) before interest and taxes, net of noncontrolling interests related to those earnings. We consider segment EBIT, which is the GAAP measure used to report segment results, to be a good indicator of each segment's operating performance from its continuing operations as it represents the results of our ownership interest in operations without regard to financing methods or capital structures.

We also use ongoing segment and Other EBIT as a measure of performance. Ongoing segment and Other EBIT is a non-GAAP financial measure as it represents reported segment and Other EBIT adjusted for special items. We believe that the presentation of ongoing segment and Other EBIT provides useful information to investors, as it allows them to more accurately compare a segment's or Other's ongoing performance across periods. The most directly comparable GAAP measure for ongoing segment or Other EBIT is reported segment or Other EBIT, which represents EBIT from continuing operations, including any special items.

Forward-Looking Statements

This release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events. One can typically identify forward-looking statements by the use of forward-looking words such as: may, will, could, project, believe, expect, estimate, continue, potential, plan, forecast and other similar words. Such statements are subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include: the implementation of state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an effect on rate structure, and affect the speed at and degree to which competition enters the natural gas industries; the outcome of litigation and regulatory investigations, proceedings or inquiries; the effect of weather and other natural phenomena, including the economic, operational and other effects of hurricanes and storms; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; general economic conditions, which can affect the long-term demand for natural gas and related services; potential effects arising from terrorist attacks and any consequential or other hostilities; changes in environmental, safety and other laws and regulations; the results of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general market and economic conditions; increases in the cost of goods and services required to complete capital projects; declines in the market prices of equity and debt securities and resulting funding requirements for defined benefit pension plans; our ability to identify opportunities for our business units and the timing and success of efforts to develop pipeline, storage, gathering, processing and other infrastructure projects; the performance of natural gas transmission and storage, distribution and gathering and processing facilities; the extent of success in connecting natural gas supplies to gathering, processing and transmission systems and in connecting to expanding gas markets; the effects of accounting pronouncements issued periodically by accounting standard-setting bodies; conditions of the capital markets in general ; and our ability to successfully complete and integrate future acquisitions.  These factors, as well as additional factors that could affect our forward-looking statements, are described under the headings "Risk Factors" and "Forward-Looking Statements" in our 2009 Form 10-K, filed on February 25, 2010, and in our other filings made with the Securities and Exchange Commission (SEC), which are available via the SEC's Web site at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Spectra Energy Corp (NYSE: SE), a FORTUNE 500 company, is one of North America's premier natural gas infrastructure companies serving three key links in the natural gas value chain: gathering and processing, transmission and storage, and distribution. For nearly a century, Spectra Energy and its predecessor companies have developed critically important pipelines and related infrastructure connecting natural gas supply sources to premium markets. Based in Houston, Texas, the company operates in the United States and Canada approximately 19,100 miles of transmission pipeline, more than 285 billion cubic feet of storage, as well as natural gas gathering and processing, natural gas liquids operations and local distribution assets. The company also has a 50 percent ownership in DCP Midstream, one of the largest natural gas gatherers and processors in the United States. Spectra Energy is a member of both the Dow Jones Sustainability Index North America and the U.S. S&P 500 Carbon Disclosure Leadership Index. For more information, visit www.spectraenergy.com.

Spectra Energy Corp

Quarterly Highlights

March 2010

(Unaudited)

(In millions, except per-share amounts and where noted)




Quarters Ended



March 31,



2010


2009

COMMON STOCK DATA





Earnings Per Share From Continuing Operations  





  Basic and Diluted


$       0.53


$              0.47

Earnings Per Share





  Basic and Diluted


$       0.55


$              0.47

Dividends Per Share


$       0.25


$              0.25

Weighted-Average Shares Outstanding





  Basic


648


628

  Diluted


649


629






INCOME





Operating Revenues


$     1,480


$            1,384

Total Reportable Segment EBIT


611


600

Income from Discontinued Operations, Net of Tax


16


3

Net Income - Controlling Interests


358


298






EBIT BY BUSINESS SEGMENT





U.S. Transmission


$        247


$               217

Distribution


146


152

Western Canada Transmission & Processing


119


81

Field Services


99


150

Total Reportable Segment EBIT


611


600

Other EBIT


(14)


(24)

  Total Reportable Segment and Other EBIT


$        597


$               576






CAPITAL AND INVESTMENT EXPENDITURES (a)





U.S. Transmission


$          73


$                 99

Distribution


32


34

Western Canada Transmission & Processing


68


37

Other


6


6

Total Capital and Investment Expenditures


$        179


$               176













March 31,


December 31,



2010


2009

CAPITALIZATION





Common Equity - Controlling Interests


41%


40%

Noncontrolling Interests and Preferred Stock


4%


4%

Total Debt


55%


56%






Total Debt


$     9,952


$            9,918

Book Value Per Share (b)


$     11.57


$            11.01

Actual Shares Outstanding


648


647






(a) Includes loans to affiliates for capital expansion projects.

(b) Represents controlling interests.

Spectra Energy Corp

Quarterly Highlights

March 2010

(Unaudited)

(In millions, except where noted)



Quarters Ended



March 31,



2010


2009

U.S. TRANSMISSION





 Operating Revenues


$  457


$  405

 Operating Expenses





Operating, Maintenance and Other


152


143

Depreciation and Amortization


64


59

 Gains on Sales of Other Assets and Other, net


-


10

 Other Income and Expenses


26


20

 Noncontrolling Interests


20


16

 EBIT


$  247


$  217






 Proportional Throughput, TBtu (a)


818


713






DISTRIBUTION





 Operating Revenues


$  668


$  708

 Operating Expenses





Natural Gas Purchased


371


435

Operating, Maintenance and Other


103


81

Depreciation and Amortization


48


40

 EBIT


$  146


$  152






 Number of Customers, Thousands


1,328


1,312

 Heating Degree Days, Fahrenheit


3,321


3,698

 Pipeline Throughput, TBtu


304


327

 Canadian Dollar Exchange Rate, Average


1.04


1.24






WESTERN CANADA TRANSMISSION & PROCESSING





 Operating Revenues


$  355


$  271

 Operating Expenses





Natural Gas and Petroleum Products Purchased


81


71

Operating, Maintenance and Other


115


88

Depreciation and Amortization


42


32

 Other Income and Expenses


2


1

 EBIT


$  119


$    81






 Pipeline Throughput, TBtu


150


162

 Volumes Processed, TBtu


163


167

 Empress Inlet Volumes, TBtu


187


211

 Canadian Dollar Exchange Rate, Average


1.04


1.24






FIELD SERVICES





 Equity in Earnings of DCP Midstream, LLC


$    99


$  150

 EBIT


$    99


$  150






 Natural Gas Gathered and Processed/Transported, TBtu/day (b)


6.7


7.0

 Natural Gas Liquids Production, MBbl/d (b,c)


353


331

 Average Natural Gas Price Per MMBtu (d)


$ 5.30


$ 4.89

 Average Natural Gas Liquids Price Per Gallon


$ 1.09


$ 0.57






OTHER





 Operating Revenues


$    13


$    12

 Operating Expenses


24


32

 Other Income and Expenses


(3)


(4)

 EBIT


$  (14)


$  (24)






(a)  Trillion British thermal units

(b)  Includes 100% of DCP Midstream volumes

(c)  Thousand barrels per day

(d)  Million British thermal units.  Average price based on NYMEX Henry Hub

Spectra Energy Corp

Condensed Consolidated Statements of Operations

(Unaudited)

(In millions)



Quarters Ended



March 31,



2010


2009






Operating Revenues


$ 1,480


$ 1,384

Operating Expenses


988


969

Gains on Sales of Other Assets and Other, net


-


10





-

Operating Income


492


425





-

Other Income and Expenses


126


176

Interest Expense


159


150

Earnings From Continuing Operations Before Income Taxes


459


451

Income Tax Expense From Continuing Operations


97


139





-

Income From Continuing Operations


362


312

Income From Discontinued Operations, net of tax


16


3





-

Net Income


378


315

Net Income - Noncontrolling Interests


20


17





-

Net Income - Controlling Interests


$    358


$    298

Spectra Energy Corp

Condensed Consolidated Balance Sheets

(Unaudited)

(In millions)




March 31,


December 31,




2010


2009

ASSETS











Current Assets


$   1,269


$              1,429

Investments and Other Assets


6,484


6,356

Net Property, Plant and Equipment


15,706


15,347

Regulatory Assets and Deferred Debits


988


947








Total Assets


$ 24,447


$            24,079







LIABILITIES AND EQUITY











Current Liabilities


$   2,203


$              2,495

Long-term Debt


9,088


8,947

Deferred Credits and Other Liabilities


4,844


4,747

Preferred Stock of Subsidiaries


258


225

Equity


8,054


7,665








Total Liabilities and Equity


$ 24,447


$            24,079

Spectra Energy Corp

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)


Quarters Ended


March 31,


2010


2009





CASH FLOWS FROM OPERATING ACTIVITIES




Net income


$ 378


$      315


Adjustments to reconcile net income to net cash  

 provided by operating activities


92


241


Net cash provided by operating activities


470


556







CASH FLOWS FROM INVESTING ACTIVITIES






Net cash used in investing activities


(206)


(142)


CASH FLOWS FROM FINANCING ACTIVITIES





Net cash used in financing activities


(302)


(405)










Effect of exchange rate changes on cash


-


(2)
















Net increase (decrease) in cash and cash equivalents


(38)


7


Cash and cash equivalents at beginning of period


196


214


Cash and cash equivalents at end of period


$ 158


$      221

Spectra Energy Corp

Reported to Ongoing Earnings Reconciliation

March 2010 Quarter-to-date

(In millions, except per-share amounts)



Reported Earnings


Discontinued Operations


Total Adjustments


Ongoing Earnings

SEGMENT EARNINGS BEFORE INTEREST  

 AND TAXES FROM CONTINUING  

 OPERATIONS  


























U.S. Transmission


$              247


$              -


$             -


$           247










Distribution


146


-


-


146










Western Canada Transmission &

 Processing


119


-


-


119










Field Services


99


-


-


99










   Total Reportable Segment EBIT


611


-


-


611










Other


(14)


-


-


(14)










   Total Reportable Segment and Other EBIT


$              597


$              -


$                -


$           597










EARNINGS


















Total Reportable Segment EBIT and Other

  EBIT


$              597


$              -


$                -


$           597

Interest Expense


(159)


-


-


(159)

Interest Income and Other


21


-


-


21

Income Taxes from Continuing Operations


(97)


-


-


(97)

Discontinued Operations, net of Tax


16


(16)

A

(16)


-

Total Earnings


$              378


$          (16)


$            (16)


$           362










Total Earnings - Noncontrolling Interests


(20)


-


-


(20)










Total Earnings - Controlling Interests


$              358


$          (16)


$            (16)


$           342










EARNINGS PER SHARE, BASIC


$             0.55


$       (0.02)


$         (0.02)


$          0.53










EARNINGS PER SHARE, DILUTED


$             0.55


$       (0.02)


$         (0.02)


$          0.53










A - Primarily a tax adjustment related to previous discontinued operations and net revenues from Sonatrach settlement.


Weighted Average Shares (reported and ongoing) - in millions       


                          Basic                                                                648  


                          Diluted                                                              649 


Spectra Energy Corp

Reported to Ongoing Earnings Reconciliation

March 2009 Quarter-to-date

(In millions, except per-share amounts)


Reported Earnings


Special Items    


Discontinued Operations


Total Adjustments


Ongoing Earnings

SEGMENT EARNINGS BEFORE INTEREST AND TAXES FROM CONTINUING OPERATIONS

































U.S. Transmission


$                           217


$                                -


$                                 -


$                                 -


$                            217












Distribution


152


-


-


-


152












Western Canada Transmission & Processing


81


-


-


-


81












Field Services


150


(135)

A

-


(135)


15












   Total Reportable Segment EBIT


600


(135)


-


(135)


465












Other


(24)


-


-


-


(24)












   Total Reportable Segment and Other EBIT


$                           576


$                          (135)


$                                 -


$                           (135)


$                            441












EARNINGS






















Total Reportable Segment EBIT and Other EBIT


$                           576


$                          (135)


$                                 -


$                           (135)


$                            441

Interest Expense


(150)


-


-


-


(150)

Interest Income and Other


25


-


-


-


25

Income Taxes from Continuing Operations


(139)


50


-


50


(89)

Discontinued Operations, net of Tax


3


-


(3)

B

(3)


-

Total Earnings


$                           315


$                            (85)


$                               (3)


$                             (88)


$                            227












Total Earnings - Noncontrolling Interests


(17)


-


-


$                                 -


(17)












Total Earnings - Controlling Interests


$                           298


$                            (85)


$                               (3)


$                             (88)


$                            210












EARNINGS PER SHARE, BASIC


$                          0.47


$                         (0.14)


$                                 -


$                          (0.14)


$                           0.33












EARNINGS PER SHARE, DILUTED


$                          0.47


$                         (0.14)


$                                 -


$                          (0.14)


$                           0.33





















A - Recognition of a deferred gain associated with units previously issued by DCP Midstream's master limited partnership.

B - Net revenues from Sonatrach settlement.


Weighted Average Shares (reported and ongoing) - in millions

     Basic                                                                                            628


     Diluted                                                                                         629

SOURCE Spectra Energy Corp

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