Exhibit 99.1
NEWS
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KeySpan Corporation For Immediate Release
Contacts: Investors Media Relations
George Laskaris Ed Yutkowitz
718.403.2526 718.403.2523
KeySpan's Strong 2nd Quarter Results Exceed Last Year
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Gas and Electric Businesses Drive Earnings Performance
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Brooklyn, New York, August 5, 2004 - KeySpan Corporation (NYSE: KSE) announced
strong second quarter results that significantly exceeded last year's results.
Consolidated earnings, less preferred stock dividends, for the three months
ended June 30, 2004 were $44.3 million or $0.28 per share as compared to $26.7
million or $0.17 per share for the same period last year. For the six month
period ended June 30, 2004, KeySpan reported consolidated earnings of $290.5
million or $1.82 per share, compared to $249.5 million or $1.59 per share for
the same period last year.
Results for 2004 exclude the impact of the following items recorded in the
second quarter: the gains associated with the partial sale of the Company's
ownership interest in KeySpan Canada, and the recently reported Houston
Exploration transaction which reduced KeySpan's ownership interest from 55% to
23.5%; and a non-cash "ceiling test" writedown of the Company's investment in
its remaining exploration and production subsidiaries. Results for 2003 exclude
the gain associated with the initial sell-down of the Company's ownership
interest in Houston Exploration and the loss associated with the Company's
initial sell-down of its ownership interest in KeySpan Canada. The details of
these items are presented in a table at the end of this release.
Including these items, second quarter 2004 results were $129.3 million or $0.81
per share, as compared to a loss of $7.4 million or $0.05 per share in the same
period last year. Year-to-date 2004 results were $375.5 million or $2.35 per
share, as compared to $234.4 million or $1.49 per share in the same period last
year.
The solid performance of the gas distribution and electric services businesses
continue to underpin these results. The improvement in the gas distribution
business was largely driven by the impact of a 2003 rate increase awarded in
KeySpan's New England territory as well as continued oil-to-gas conversions and
new customer additions, which remained strong throughout the service
territories. In the electric services segment, higher net energy margins were
realized as a result of the new Ravenswood generating unit and warmer weather.
Augmenting these two core businesses, KeySpan's energy investments segment
benefited from both higher natural gas production and realized gas prices. In
addition, Energy Services reduced its loss for the quarter compared to last
year.
"These second quarter results continue to reflect the excellent growth potential
of our core businesses and the execution of our focused core business strategy,"
said Robert B. Catell, Chairman and Chief Executive Officer. "In this context,
the new Ravenswood unit has performed exceptionally while our gas business is on
plan in new customer additions. We also continue to execute on our strategy of
reducing our ownership interest in our non-core businesses and enhancing our
financial position. In particular, I am pleased that KeySpan's transaction with
Houston Exploration created a significant amount of additional value for
shareholders of both companies."
Segment Highlights
The results from continuing operations for the second quarter of 2004 and 2003
are reported on an Operating Income basis as follows:
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Operating Income ($ millions) 2nd Quarter 2nd Quarter YTD 2004 YTD 2003
----------------------------- ------------ ------------ -------- --------
2004 2003
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Gas Distribution 35.1 31.6 414.7 396.6
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Electric Services 67.9 52.1 115.1 91.7
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Energy Investments
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
E&P Operations 59.6 50.1 121.7 105.7
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E&P Ceiling Test Writedown (48.2) - (48.2) -
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Net E&P 11.4 50.1 73.5 105.7
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Other Energy Investments 5.5 9.1 18.4 19.2
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Subtotal Energy Investments 16.9 59.2 91.9 124.9
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Energy Services (4.9) (10.5) (23.4) (19.6)
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Total Operating Segments 114.9 132.5 598.3 593.6
----- ----- ----- -----
- --------------------------------------------------------- ---------------- --------------- ---------------- ---------------
Other 8.4 5.8 11.6 1.3
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Total Operating Income 123.3 138.2 610.0 594.9
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Notes:
- - Operating income represents 100% of KeySpan's gas exploration and
production subsidiaries' results in 2004 for the five months ended May 31
and one month of equity earnings for KeySpan's 23.5% interest in Houston
Exploration, as compared to 100% in 2003.
- - Operating income in 2004 represents 100% of KeySpan's Canadian
subsidiaries' results in 2004 for the three months ended March 31 and three
months of equity earnings for KeySpan's 25% interest in its Canadian
subsidiaries, as compared to 100% in 2003.
Key Operating Income Drivers by Segment
o Our Gas Distribution segment, which serves New York City, Long Island and
New England, reported operating income of $35 million for the second
quarter, an increase of 11% over the same period last year. Year-to-date
results of approximately $415 million were up 5% over last year. These
results benefited from the rate increase in the New England service
territory and new load growth. During the first half of 2004, KeySpan
completed more than 20,000 gas installations, consistent with plan, which
should add approximately $20 million in new gross profit margin. For the
first six months of 2004, the rate increase in KeySpan's New England
territory contributed $20.7 million to net margins. Weather for the six
months ended June 30, 2004 was approximately 7% warmer than last year.
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o The Electric Services segment owns and operates generation in the New York
City and Long Island "load pockets" and manages the Long Island Power
Authority's transmission and distribution system under long-term contracts.
Operating income of $67.9 million for the second quarter of 2004 was $16
million or 30% above last year, reflecting higher energy margins and
capacity revenues due to the addition of 250MW of generating capacity at
the Ravenswood facility and warmer weather.
o The Energy Investments segment contains the Company's gas exploration and
production operations, including its 23.5% ownership of The Houston
Exploration Company (NYSE: THX), its Canadian processing plants, pipelines
and other investments. The exploration and production operations continue
to perform well and realized an increase in income from operations of
approximately $9 million to $59 million in the second quarter compared to
last year, due to an 18% increase in both production volumes and average
realized gas prices. These positive results were offset by the non-cash
ceiling test charge of $48.2 million in KeySpan's remaining exploration and
production subsidiaries to recognize the reduced valuation of proved
reserves. Since Houston Exploration is now accounted for on the equity
method of accounting, its reserves were not included in this ceiling test.
In addition, Other Energy Investments' operating income decreased by $4
million substantially due to KeySpan's reduced ownership in KeySpan Canada.
o The Energy Services segment includes subsidiaries that provide
energy-related services to customers in the Northeast through Home Energy
Services and Business Solutions. This segment reported an operating loss of
$4.9 million for the quarter, as compared to an operating loss of $10.5 in
the prior year. Business Solutions reported an improved quarter, largely
due to better business conditions, improved project profit margins and cost
reduction measures. In addition, total backlog increased 35% to $635
million compared to $469 million last year, primarily due to recent project
awards and the BR+A acquisition, completed in the third quarter of last
year. These results continue to be below expectations, and the Company is
continuing to evaluate this segment and the performance of its components
and will take appropriate action.
Financial Update
The Company continued to strengthen its financial position through its excellent
operational performance and the reduction of its ownership interest in non-core
businesses. On April 1, 2004, KeySpan completed the sale of an additional 36% of
its ownership interest in KeySpan Canada, reducing its holdings from 61% to 25%.
KeySpan's interest was sold through a Canadian income trust and yielded net
proceeds of approximately $135 million and an after-tax gain of $10 million or
$0.06 per share. A subsequent acquisition by the Canadian income trust has
further diluted KeySpan's current holdings to 17.4%.
In June 2004, KeySpan exchanged 10.8 million shares of Houston Exploration
common stock for all the shares of Seneca-Upshur Petroleum, Inc. a wholly owned
subsidiary of Houston Exploration. This transaction reduced the Company's
interest from 55% to 23.5% and resulted in a gain to the Company of $150
million. Due to the reduction of ownership in both the Company's exploration &
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production and Canadian operations, these businesses will now be reported on the
equity method of accounting rather than on a consolidated basis. Due to this
change in accounting, a $44.1 million deferred tax provision was recorded in
connection with KeySpan's remaining investment in Houston Exploration.
The Company also closed on the financing of the new Ravenswood unit by entering
into a leveraged lease agreement. As part of this financing, KeySpan recorded a
pre-tax gain of $12.6 million (or $0.05 per share after-tax), as other income on
the settlement of the Treasury lock undertaken associated with this
sale-leaseback transaction.
During the quarter, KeySpan also closed on a credit facility of $640 million for
5 years. This facility replaces an existing $450 million, 364-day facility which
expired in June, and allowed the Company to reduce bank commitments by $190
million in its existing 3-year, $850 million facility due in June 2006. This new
facility was provided by a syndicate of sixteen banks and was oversubscribed.
At the end of the second quarter, the Company's debt to total capitalization
ratio, as calculated by the Company's credit facilities, improved to 52.7%, as
compared to 56.1% at March 30, 2004. On a GAAP basis, the debt to total
capitalization ratio was 56.7% at the end of the quarter, as compared to 59.8%
at the end of the first quarter.
In addition, the Company announced its intention to redeem approximately $760
million of outstanding debt ahead of scheduled maturities, which will further
improve our balance sheet.
The Company declared a quarterly common stock dividend of $0.445 per share,
payable August 1, 2004, to shareholders of record as of July 16, 2004. This is
the Company's 25th consecutive quarter of paying a dividend, and builds upon its
long-standing commitment of dividend payments to its shareholders. The $1.78 per
share annual dividend, supported by strong cash flows, provides a current yield
to shareholders of approximately 5%.
2004 Earnings Outlook
KeySpan's 2004 earnings guidance remains at $2.55 to $2.75 per share, as
announced in December 2003, despite the Company's reduced ownership in Houston
Exploration. This guidance includes earnings from continuing core operations of
approximately $2.20 to $2.30 per share, and from exploration and production
operations of approximately $0.35 to $0.45 per share; excluding the special
items affecting the exploration & production and Canada results. KeySpan's
earnings forecasts may vary significantly during the year due to, among other
things, changing energy market conditions and weather. The Company once again
reaffirms its dividend at the current annual rate of $1.78 per share.
"We continue to focus on growing our core businesses, which are well-positioned
within our Northeast footprint. Our gas conversion program is adding new
customers and we are meeting the electric needs of both New York City and Long
Island with our strategic generation portfolio. The new Ravenswood unit has
successfully contributed to meeting the city's electric demands," said Mr.
Catell. "We continue to strengthen our financial position as we continue to
execute on exiting our non-core businesses, remaining fully committed to our `A'
quality credit rating. Our 5% dividend yield and the growth in our core
businesses will continue to provide the foundation for improving KeySpan's
long-term shareholder value."
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Below is a description of the special items discussed in this release, and their
impact on consolidated earnings.
Impact of Special Items on Earnings
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Special Item 2nd Quarter 2004 2nd Quarter 2003
- ---------------------------------------------- --------------- ------------------- --------------- -------------------
(millions) Earnings per share (millions) Earnings per share
- ---------------------------------------------- --------------- ------------------- --------------- -------------------
Sale of THX (31%) $ 150.1 $ 0.94 - -
- ---------------------------------------------- --------------- ------------------- --------------- -------------------
Deferred Tax Provision on Remaining THX $(44.1) $(0.28) - -
investment
- ---------------------------------------------- --------------- ------------------- --------------- -------------------
Sale of KeySpan Canada (36% / 39%) $ 10.1 $ 0.06 $(34.1) $(0.22)
- ---------------------------------------------- --------------- ------------------- --------------- -------------------
Ceiling Test Writedown in E&P $(31.1) $(0.19) - -
- ---------------------------------------------- --------------- ------------------- --------------- -------------------
Total for the 2nd Quarter $ 85.0 $ 0.53 $(34.1) $(0.22)
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- ---------------------------------------------- ----------------------------------- -----------------------------------
1st Quarter 2004 1st Quarter 2003
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Sale of THX (10%) - - $ 19.0 $ 0.12
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- ---------------------------------------------- --------------- ------------------- --------------- -------------------
Total Year-to-Date $ 85.0 $ 0.53 $(15.1) $(0.10)
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Investors are invited to listen to the KeySpan Corporation 2004 Second Quarter
Conference Call on:
Thursday, August 5, 2004, at 10:30 AM (EST)
Dial-In Number: (888) 552-7850
International Dial-In Number: (706) 645-9166
Replay will begin two hours after the call until 8/10/04
Replay Number: 800-642-1687
International Replay Number: (706) 645-9291
Access Code: 8237080
Audio webcast available at http://investor.keyspanenergy.com
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A member of the Standard & Poor's 500 Index, KeySpan Corporation (NYSE:KSE) is
the fifth largest distributor of natural gas in the United States and the
largest in the Northeast, operating regulated gas utilities in New York,
Massachusetts and New Hampshire, serving 2.5 million customers. These
customer-focused businesses are complemented by a portfolio of service companies
which offer energy-related products, services and solutions to homes and
businesses. KeySpan is also the largest electric generator in New York State. We
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own approximately 6,600 megawatts of generating capacity, providing power to 1.1
million customers of the Long Island Power Authority on Long Island and
supplying approximately 25 percent of New York City's capacity needs. In
addition to these assets, KeySpan has strategic investments in natural gas
exploration, production, pipeline transportation, distribution and storage, and
Canadian gas processing. KeySpan has headquarters in Brooklyn, New England and
Long Island. For more information, visit KeySpan's web site at
www.keyspanenergy.com.
Certain statements contained herein are forward-looking statements, which
reflect numerous assumptions and estimates and involve a number of risks and
uncertainties. For these statements, we claim the protection of the safe harbor
for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995. There are possible developments that could cause our actual
results to differ materially from those forecasted or implied in the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements, which are current only as of the date of this
filing. We disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Among the factors that could cause actual results to differ
materially are: general economic conditions, especially in the Northeast United
States; available sources and costs of fuel; volatility of energy prices in a
deregulated market environment as well as in the source of natural gas and fuel
used to generate electricity; potential write-down of our investment in natural
gas properties when natural gas prices are depressed or if we have significant
downward revisions in our estimated proved gas reserves; federal and state
regulatory initiatives that increase competition, threaten cost and investment
recovery and impact rate structure; our ability to successfully reduce our cost
structures; implementation of new accounting standards; the degree to which we
develop unregulated business ventures, as well as federal and state regulatory
policies affecting our ability to retain and operate those business ventures;
our ability to identify and make complementary acquisitions, as well as the
successful integration of those acquisitions; inflationary trends and interest
rates; and risks detailed from time to time in reports and other documents filed
by us with the Securities and Exchange Commission.
6
KeySpan Corporation
Consolidated Summary of Earnings
(In Thousands of Dollars, Except Per Share Amounts)
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Three Months Ended June 30 Six Months Ended June 30
2004 2003 2004 2003
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Revenues
Gas Distribution $ 676,363 $ 732,036 $ 2,604,142 $ 2,564,737
Electric Services 433,763 392,345 792,899 790,045
Energy Services 129,877 132,268 258,936 261,333
Gas Exploration and Production 118,926 122,875 271,345 250,722
Energy Investments 6,842 28,628 34,022 53,840
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Total Revenues 1,365,771 1,408,152 3,961,344 3,920,677
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Operating Expenses
Purchased gas for resale 363,130 424,300 1,589,703 1,620,465
Fuel and purchased power 130,347 102,476 231,959 199,998
Operations and maintenance 477,511 509,636 969,977 1,007,825
Depreciation, depletion and amortization 189,403 142,290 361,088 287,261
Operating taxes 90,484 95,251 212,763 219,964
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Total Operating Expenses 1,250,875 1,273,953 3,365,490 3,335,513
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Income from Equity Investments 8,416 4,030 14,133 9,759
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Operating Income 123,312 138,229 609,986 594,923
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Other Income and (Deductions)
Interest Charges (88,475) (79,198) (172,540) (148,137)
Minority interest (16,661) (13,000) (36,954) (30,358)
Gain (Loss) on sale of subsidiary stock 172,894 (30,345) 172,894 (11,325)
Cost of debt redemption 0 (5,900) 0 (24,094)
Other 19,382 (246) 22,143 14,455
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Total Other Income (Deductions) 87,140 (128,689) (14,457) (199,459)
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Income Taxes
Current 8,364 4,017 163,503 133,592
Deferred 71,351 11,461 53,592 24,719
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Total Income Taxes 79,715 15,478 217,095 158,311
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Earnings (Loss) before Change in
Accounting Principle 130,737 (5,938) 378,434 237,153
Cumulative Effect of Change
in Accounting Principle - - - 174
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Net Income (Loss) 130,737 (5,938) 378,434 237,327
Preferred Stock Dividends 1,459 1,461 2,920 2,922
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Earnings (Loss) for Common Stock $ 129,278 ($ 7,399) $ 375,514 $ 234,405
- ------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share:
Befor Change in Accounting Principle, less
Preferred Stock Dividends $0.81 ($0.05) 2.35 1.49
Change in Accounting Principle - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share $0.81 ($0.05) 2.35 1.49
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Diluted Earnings Per Share:
Before Change in Accounting Principle, less
Preferred Stock Dividends $0.80 ($0.05) 2.33 1.48
Change in Accounting Principle - - - -
- ------------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share $0.80 ($0.05) 2.33 1.48
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Average Shares Outstanding (000)
Basic 160,167 157,943 160,030 157,414
Diluted 161,433 158,757 161,256 158,464
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Segment Information
Six Months Ended June 30, 2004
(In Thousands of Dollars)
Energy Investments
-----------------------------
Total
Gas Electric Gas Exploration Other Energy Operating Reconcil-
Distribution Services & Production Investments Services Segments liations Total
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Unaffiliated Revenues 2,604,142 792,899 271,345 34,022 258,936 3,961,344 - 3,961,344
Intersegment Revenues - - - 2,543 7,583 10,126 (10,126) -
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2,604,142 792,899 271,345 36,565 266,519 3,971,470 (10,126) 3,961,344
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Operation Expenses
Purchased Gas 1,589,703 - - - - 1,589,703 - 1,589,703
Purchased Fuel - 231,707 - 237 - 231,944 15 231,959
Operations and
Maintenance 340,541 319,256 40,006 22,315 283,931 1,006,049 (36,071) 969,978
Depreciation, Depletion
and Amortization 143,750 43,965 154,649 5,846 4,945 353,155 7,933 361,088
Operating Taxes 115,431 82,860 5,739 1,353 1,023 206,406 6,357 212,763
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Total Operating
Expenses 2,189,424 677,788 200,394 29,751 289,899 3,387,256 (21,766) 3,365,490
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Income From Equity
Investments - - 2,545 11,588 - 14,133 - 14,133
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Operating Income 414,717 115,111 73,496 18,402 (23,380) 598,346 11,640 609,986
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Segment Information
Six Months Ended June 30, 2003
(In Thousands of Dollars)
Energy Investments
--------------------------
Gas
Gas Electric Exploration Other Energy Total Operating Reconcil-
Distribution Services & Production Investments Services Segments liations Total
- ------------------------------------------------------------------------------------------------------------------------------------
Unaffiliated Revenues 2,564,737 790,045 250,722 53,840 261,333 3,920,677 - 3,920,677
Intersegment Revenues - 51 - 2,504 2,968 5,523 (5,523) -
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2,564,737 790,096 250,722 56,344 264,301 3,926,200 (5,523) 3,920,677
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Operation Expenses
Purchased Gas 1,571,616 48,849 - - - 1,620,465 - 1,620,465
Purchased Fuel - 199,747 - 251 - 199,998 - 199,998
Operations and Maintenance 329,213 344,195 39,595 36,034 278,768 1,027,805 (19,980) 1,007,825
Depreciation, Depletion
and Amortization 137,009 32,808 96,918 9,040 4,476 280,251 7,010 287,261
Operating Taxes 130,345 72,753 8,471 1,472 642 213,683 6,281 219,964
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Total Operating
Expenses 2,168,183 698,352 144,984 46,797 283,886 3,342,202 (6,689) 3,335,513
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Income From Equity
Investments - - - 9,651 - 9,651 108 9,759
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Operating Income 396,554 91,744 105,738 19,198 (19,585) 593,649 1,274 594,923
=======================================================================================================
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Segment Information
Three Months Ended June 30, 2004
(In Thousands of Dollars)
Energy Investments
----------------------------
Gas Total
Gas Electric Exploration Other Energy Operating Reconcil-
Distribution Services & Production Investments Services Segments liations Total
- ------------------------------------------------------------------------------------------------------------------------------------
Unaffiliated Revenues 676,363 433,763 118,926 6,842 129,877 1,365,771 1,365,771
Intersegment Revenues - - - 1,278 4,147 5,425 (5,425) -
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676,363 433,763 118,926 8,120 134,024 1,371,196 (5,425) 1,365,771
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Operation Expenses
Purchased Gas 363,130 - - - - 363,130 - 363,130
Purchased Fuel - 130,218 - 114 - 130,332 15 130,347
Operations and
Maintenance 168,141 172,071 14,855 6,927 135,848 497,842 (20,331) 477,511
Depreciation, Depletion
and Amortization 66,810 22,359 92,728 865 2,460 185,222 4,181 189,403
Operating Taxes 43,217 41,203 2,500 605 622 88,147 2,337 90,484
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Total Operating Expenses 641,298 365,851 110,083 8,511 138,930 1,264,673 (13,798) 1,250,875
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Income From Equity
Investments - - 2,545 5,871 - 8,416 - 8,416
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Operating Income 35,065 67,912 11,388 5,480 (4,906) 114,939 8,373 123,312
===========================================================================================================
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Segment Information
Three Months Ended June 30, 2003
(In Thousands of Dollars)
Energy Investments
-------------------------
Gas Total
Gas Electric Exploration Other Energy Operating Reconcil-
Distribution Services & Production Investments Services Segments liations Total
- ------------------------------------------------------------------------------------------------------------------------------------
Unaffiliated Revenues 732,036 392,345 122,875 28,628 132,268 1,408,152 1,408,152
Intersegment Revenues 26 1,252 1,542 2,820 (2,820) -
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732,036 392,371 122,875 29,880 133,810 1,410,972 (2,820) 1,408,152
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Operation Expenses
Purchased Gas 417,484 6,816 - - - 424,300 - 424,300
Purchased Fuel - 102,359 - 117 - 102,476 - 102,476
Operations and Maintenance 163,124 179,794 19,489 19,390 141,590 523,387 (13,751) 509,636
Depreciation, Depletion
and Amortization 66,192 16,188 49,475 4,569 2,362 138,786 3,504 142,290
Operating Taxes 53,620 35,114 3,763 724 321 93,542 1,709 95,251
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Total Operating
Expenses 700,420 340,271 72,727 24,800 144,273 1,282,491 (8,537) 1,273,953
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Income From Equity
Investments - - - 3,994 - 3,994 36 4,030
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Operating Income 31,616 52,100 50,148 9,074 (10,463) 132,475 5,753 138,229
========================================================================================================
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