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SEC Filings
10-Q
SOUTHERN UNION CO filed this Form 10-Q on 05/09/2013
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The segment analysis in the following section describes the significant items impacting the Segment Adjusted EBITDA amounts reflected above. In addition, as discussed in the “Overview” section above, the comparability of net income between predecessor and successor periods was impacted by the application of “push-down” accounting. The most significant impacts of this new basis of accounting were:

Incremental depreciation and amortization expense has been recognized in the successor periods subsequent to March 25, 2012 as a result of the application of the new basis of accounting.
The application of “push-down” accounting also resulted in the Company’s long-term debt being recorded at fair value, which impacted the amount of amortization recorded in interest expense. This change in the amount of amortization resulted in a net reduction within interest expense of approximately $10 million per quarter subsequent to March 25, 2012.
In addition to the impact of the amortization of the debt fair value adjustments, interest expense was also lower during the three months ended March 31, 2013 due to repayments of long-term debt in 2012.

The Company’s consolidated net income was also impacted by changes in income taxes that were driven by the ETE Merger; those impacts were described in the “Federal and State Income Taxes” section below.

The “Supplemental Pro Forma Information” section, which follows the “Business Segment Results” section, provides additional analysis of the Company’s consolidated net income on a year-to-date basis, assuming the ETE Merger had been completed on January 1, 2012.
Federal and State Income Taxes

The following table sets forth the Company’s income taxes from continuing operations for the periods presented.
 
 
Successor
 
 
Predecessor
 
 
Three Months Ended
March 31, 2013
 
Period from Acquisition (March 26, 2012) to March 31, 2012
 
 
Period from January 1, 2012 to March 25, 2012
Income tax expense (benefit)
 
$
10

 
$
(12
)
 
 
$
12

Effective tax rate
 
41
%
 
23
%
 
 
27
%

The Company’s effective income tax rate for the period ended March 31, 2013 was higher than the federal statutory rate of 35% primarily due to state income taxes. The effective income tax rate for the period from March 26, 2012 to March 31, 2012 was lower than the federal statutory rate primarily due to the Company’s pre-tax loss as a result of merger-related expenses coupled with non-deductible executive compensation included in the merger-related expenses. The effective income tax rate for the period from January 1, 2012 to March 25, 2012 was lower than the federal statutory rate primarily due to the dividend received reduction for the anticipated receipt of dividends associated with the earnings from the Company’s prior unconsolidated investment in Citrus.
Business Segment Results

Transportation and Storage Segment

The Transportation and Storage segment is primarily engaged in the interstate transportation and storage of natural gas in the Midwest, Gulf Coast and Midcontinent United States, and LNG terminalling and regasification services.  The Transportation and Storage segment’s operations are regulated as to rates and other matters by the FERC. Demand for natural gas transmission services on Panhandle’s pipeline system is seasonal, with the highest throughput and a higher portion of annual total operating revenues and Segment Adjusted EBITDA occurring in the traditional winter heating season, which occurs during the first and fourth calendar quarters.
  
The Company’s business within the Transportation and Storage segment is conducted through both short- and long-term contracts with customers.  Short-term and long-term contracts are affected by changes in market conditions and competition with other pipelines, changing supply sources and volatility in natural gas prices and basis differentials.  Since the majority of the revenues within the Transportation and Storage segment are related to firm capacity reservation charges, which customers pay whether they utilize their contracted capacity or not, volumes transported do not have as significant an impact on revenues over the short-term.  However, longer-term demand for capacity may be affected by changes in the customers’ actual and anticipated utilization of their contracted capacity and other factors.

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