spectra energy 4Q07EarningsSlides

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spectra energy 4Q07EarningsSlides

  1. 1. Fourth Quarter 2007 Earnings Review Fred Fowler President and CEO Greg Ebel CFO February 6, 2008
  2. 2. Safe Harbor Statement Some of the statements in this document concerning future company performance will be forward-looking within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and you should refer to the additional information contained in Spectra Energy’s Form 10-K and other filings made with the SEC concerning factors that could cause those results to be different than contemplated in today's discussion. Reg G Disclosure In addition, today’s discussion includes certain non-GAAP financial measures as defined under SEC Regulation G. A reconciliation of those measures to the most directly comparable GAAP measures is available on Spectra Energy’s Investor Relations website at www.spectraenergy.com. Fourth Quarter 2007 Earnings Review | February 6, 2008 2
  3. 3. 2007 Accomplishments • $1.53 ongoing fully diluted EPS - 9% over our $1.40 employee incentive target • Strong earnings at all businesses • Excellent 4Q07 – $0.47 ongoing fully diluted EPS • Capital expansion plans delivered: • $1 billion in expansion capex • 13 new projects in-service totaling about $650 million • 10-12% return on capital employed • $20 million corporate cost reduction • Strong investment grade balance sheet • IPO of Spectra Energy Partners at a record yield Successfully launched Spectra Energy and delivered on 2007 financial, operational and investment commitments Fourth Quarter 2007 Earnings Review | February 6, 2008 3
  4. 4. Earnings Summary ($ millions) 4Q07 4Q06 2007 2006 Reported Net Income $ 291 $ 255 $ 957 $ 1,244 Special Items 9 11 25 (17) Discontinued Operations 1 (13) (13) (308) Extraordinary Items (4) - - - Ongoing Net Income $ 297 $ 253 $ 969 $ 919 Reported Diluted EPS $ 0.46 n/a $ 1.51 n/a Ongoing Diluted EPS $ 0.47 n/a $ 1.53 n/a • Special items: • 4Q07 – gas spin-off separation costs • 4Q06 – gas spin-off separation costs and costs to achieve Duke Energy/Cinergy merger • Discontinued Operations: • 4Q06 – operations transferred back to Duke Energy prior to the spin-off of Spectra Energy • Extraordinary Item: • 4Q07 – adjustment of deferred tax liability associated with Distribution’s unregulated storage Fourth Quarter 2007 Earnings Review | February 6, 2008 4
  5. 5. U.S. Transmission Reported & Ongoing Segment EBIT ($ millions) 4Q07 4Q06 2007 2006 Reported Segment EBIT $ 221 $ 172 $ 894 $ 816 Special Items --- --- --- (24) Ongoing Segment EBIT $ 221 $ 172 $ 894 $ 792 • 4Q07 ongoing segment results increased $49 million compared with 4Q06 primarily a result of: • higher demand for services and expansion projects • higher processing earnings due to pricing • lower project development costs in 4Q07 Fourth Quarter 2007 Earnings Review | February 6, 2008 5
  6. 6. Distribution Reported & Ongoing Segment EBIT ($ millions) 4Q07 4Q06 2007 2006 Reported Segment EBIT $ 84 $ 84 $ 322 $265 Special Items --- --- --- --- Ongoing Segment EBIT $ 84 $ 84 $ 322 $ 265 • 4Q07 ongoing segment results unchanged compared with 4Q06 primarily a result of: • increased customer usage as a result of colder weather, as well as additional load from gas fired power generation, higher distribution rates, • favorable foreign currency exchange, • offset by higher operating costs primarily due to higher than expected “unaccounted for gas” Fourth Quarter 2007 Earnings Review | February 6, 2008 6
  7. 7. Western Canada Transmission & Processing Reported & Ongoing Segment EBIT ($ millions) 4Q07 4Q06 2007 2006 Reported Segment EBIT $ 142 $ 76 $ 366 $ 345 Special Items --- --- --- (15) Ongoing Segment EBIT $ 142 $ 76 $ 366 $ 330 • 4Q07 ongoing segment results were $66 million higher than 4Q06 due to: • higher NGL gross margin due to higher frac spread Empress 2007 annual average frac spread was $7.15 • favorable foreign currency exchange Fourth Quarter 2007 Earnings Review | February 6, 2008 7
  8. 8. Field Services Reported & Ongoing Segment EBIT ($ millions) 4Q07 4Q06 2007 2006 Reported Segment EBIT $ 188 $ 119 $ 533 $ 569 Special Items 6 -- 16 (14) Ongoing Segment EBIT $ 194 $ 119 $ 549 $ 555 • 4Q07 ongoing EBIT higher by $75 million compared with 4Q06 due to: • favorable commodity prices • offset by lower gathering and processing margins due to changed contract mix and lower plant efficiencies • Special item: Spectra Energy’s 50% share of stand-alone costs in 4Q07 • 4Q07 crude oil prices about $91/barrel compared with $61/barrel in 4Q06; settled price for all of 2007 is about $72/barrel • $260 million in cash distributions to Spectra Energy Fourth Quarter 2007 Earnings Review | February 6, 2008 8
  9. 9. Other Reported & Ongoing EBIT ($ millions) 4Q07 4Q06 2007 2006 Other Reported EBIT (Loss) $ (56) $ (12) $ (112) $ (77) Special Items 8 17 23 35 Other Ongoing EBIT (Loss) $ (48) $5 $ (89) $ (42) • 4Q07 ongoing Other was higher than 4Q06 due primarily to: • 4Q06 includes mark-to-market gains ($4) and management fees billed back to Duke ($20) - absent these, 4Q06 ongoing EBIT loss would have been $19 million • higher corporate costs, including employee incentive and other benefit costs • Special items: • 4Q07 relates to gas spin-off separation costs • 4Q06 relates to separation costs and costs to achieve the Duke Energy/Cinergy merger Fourth Quarter 2007 Earnings Review | February 6, 2008 9
  10. 10. Additional Items • Interest expense for 4Q07 was $166 million compared with $162 million for 4Q06 • Spectra Energy’s effective tax rate for the 4Q07 was 31% compared with 15% in 4Q06 – full year 2007 tax rate was 32% • Debt to Total Capitalization at Dec. 31, 2007 is 55% • Total credit facility capacity at Dec. 31, 2007 of $2.7 billion; available capacity of $1.9 billion • Canadian currency net after tax effect on earnings for 4Q07 was favorable by about $14 million compared with 4Q06 Fourth Quarter 2007 Earnings Review | February 6, 2008 10
  11. 11. 2007 Ongoing EBIT Compared with 2008 Ongoing EBIT Forecast 2007 Ongoing 2008 Forecast ($ millions) EBIT EBIT U.S. Transmission $ 894 $ 870 Distribution 322 380 Western Canada Transmission & Processing 366 345 Field Services (1) 549 650 Other (89) (85) TOTAL Ongoing Segment and Other EBIT $ 2,042 $ 2,160 (1) EBIT represents Spectra Energy’s Equity in Earnings of DCP Midstream. Fourth Quarter 2007 Earnings Review | February 6, 2008 11
  12. 12. Spectra Energy Ongoing Net Income Rollforward: 2007 Actual to 2008 Employee Incentive Target 1,250 50 45 1,200 30 55 1,150 20 10 19 140 60 1,100 $MM 1,050 30 1,000 1,000 969 950 900 2007 NI Exp Commodity Foreign Proj Dev '07 Prop US Transm SEP Full Misc Interest & Income Tax 2008 NI Projects Price/Vol Exchange Cost / Tax Benefit Processing Year Other Reversal $1.56 $1.53 Fourth Quarter 2007 Earnings Review | February 6, 2008 12
  13. 13. Spectra Energy Ongoing EBIT Rollforward: 2007 Actual to 2008 Employee Incentive Target 2,250 4 24 58 2,200 21 2,160 101 2,150 2,100 2,042 2,050 $MM 2,000 1,950 1,900 1,850 1,800 2007 EBIT Field Services Distribution Other US Transmission Western Canada 2008 EBIT Trans & Proc Fourth Quarter 2007 Earnings Review | February 6, 2008 13
  14. 14. 2008 Outlook and Beyond • $1.56 ongoing, fully diluted EPS employee incentive target for 2008 - 11% increase over 2007 target • Committed to dividend growth • 2008 dividend increased by $0.04/share to $0.92/share • Continue to execute on Capex plans • $1 billion+ per year spending through 2010 • $1.5 billion in projects expected in-service during 2008 • $500 million annualized EBIT expected by 2011 • Aggressively pursuing post-2010 opportunities • 2008 Long Term Incentive • 50% based on TSR relative to a peer group of companies for three years Targeting 5-7% compounded annual ongoing diluted EPS growth from 2007 through 2010 Fourth Quarter 2007 Earnings Review | February 6, 2008 14
  15. 15. Fourth Quarter 2007 Earnings Review | February 6, 2008 15

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