<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-722
THE BROOKLYN UNION GAS COMPANY
(Exact name of Registrant as specified in its charter)
New York 11-0584613
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
One MetroTech Center, Brooklyn, New York 11201-3851
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code (718) 403-2000
NONE
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class of Common Stock Outstanding at May 1, 1995
$.33 1/3 par value 48,372,695 <PAGE>
<PAGE>
<TABLE>
<CAPTION>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
INDEX
<S>
Part I. Financial Information Page No.
<C>
Condensed Consolidated Balance Sheet -
March 31, 1995 and 1994, and September 30,
1994 3
Condensed Consolidated Statement of Income -
Three, Six and Twelve Months Ended March 31,
1995 and 1994 4
Condensed Consolidated Statement of Cash Flows -
Six and Twelve Months Ended March 31,
1995 and 1994 5
Notes to Condensed Consolidated Financial
Statements 6
Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Review of Independent Public Accountants 15
Report of Independent Public Accountants 16
Part II. Other Information
Item 1 - Legal Proceedings 17
Item 5 - Other Information 17
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE> <PAGE>
<PAGE>
<TABLE>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, March 31, September 30,
1995 1994 1994
(Unaudited) (Unaudited) (Audited)
(Thousands of Dollars)
<CAPTION>
<S> <C> <C> <C>
Assets
Property
Utility, at cost $ 1,634,326 $ 1,554,897 $ 1,599,452
Accumulated depreciation (375,295) (339,639) (354,925)
Gas exploration and production, at cost 316,182 250,991 276,659
Accumulated depletion (127,277) (103,377) (115,890)
1,447,936 1,362,872 1,405,296
Investments in Energy Services 107,423 82,357 91,283
Current Assets
Cash 12,858 11,112 11,610
Temporary cash investments 64,435 39,325 41,881
Accounts receivable 342,265 471,304 193,130
Allowance for uncollectible accounts (18,682) (19,531) (14,963)
Gas in storage, at average cost 39,089 30,242 96,076
Materials and supplies, at average cost 12,370 11,696 11,356
Prepaid gas costs 1,752 643 14,667
Other 25,206 17,295 31,441
479,293 562,086 385,198
Deferred Charges 168,491 139,404 147,297
$ 2,203,143 $ 2,146,719 $ 2,029,074
Capitalization and Liabilities
Capitalization
Common stock, $.33 1/3 par value stated at $ 508,875 $ 480,041 $ 494,770
Retained earnings 362,352 339,732 279,466
Total common equity 871,227 819,773 774,236
Preferred stock, redeemable 6,900 7,200 7,200
Long-term debt 714,759 702,842 701,377
1,592,886 1,529,815 1,482,813
Current Liabilities
Accounts payable 128,753 176,591 132,491
Dividends payable 17,176 16,459 16,609
Taxes accrued 57,096 69,342 15,213
Customer deposits 22,748 22,506 22,445
Customer budget plan credits - - 18,358
Interest accrued and other 40,135 51,943 45,807
265,908 336,841 250,923
Deferred Credits
Federal income tax 245,240 221,648 230,316
Unamortized investment tax credit 21,474 22,486 22,000
Other 77,635 35,929 43,022
344,349 280,063 295,338
$ 2,203,143 $ 2,146,719 $ 2,029,074
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
Three Months Six Months Twelve Months
Ended March 31, Ended March 31, Ended March 31,
1995 1994 1995 1994 1995 1994
(Thousands of Dollars)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues
Utility sales $ 468,271 $ 533,830 $ 812,451 $ 888,678 $ 1,203,411 $ 1,225,461
Gas production and other 13,344 15,140 27,512 31,770 54,763 63,841
481,615 548,970 839,963 920,448 1,258,174 1,289,302
Operating Expenses
Cost of gas 189,505 246,682 324,630 392,306 493,003 514,084
Operation and maintenance 102,107 109,140 193,469 203,609 376,436 389,352
Depreciation and depletion 17,756 17,648 36,069 34,952 70,846 68,469
General taxes 48,176 55,607 84,954 94,956 140,742 148,594
Federal income tax 38,169 36,332 59,791 57,939 40,044 43,157
Operating Income 85,902 83,561 141,050 136,686 137,103 125,646
Other Income (Expense)
Gain on sale of investment
in Canadian gas company - - - - - 20,462
Write-off of investment
in propane company - - - - - (17,617)
Income from equity investments 2,402 1,018 4,022 2,627 6,831 1,472
Other, net (1,042) 1,315 (1,862) 1,117 (3,637) (1,167)
Federal income tax (196) 66 (362) 158 562 409
Income Before Interest Charges 87,066 85,960 142,848 140,588 140,859 129,205
Interest Charges
Long-term debt 11,992 11,514 23,854 23,373 47,577 46,454
Other 1,434 892 2,516 1,498 5,137 2,827
13,426 12,406 26,370 24,871 52,714 49,281
Net Income 73,640 73,554 116,478 115,717 88,145 79,924
Dividends on Preferred Stock 85 89 171 178 344 358
Income Available for
Common Stock $ 73,555 $ 73,465 $ 116,307 $ 115,539 $ 87,801 $ 79,566
Per Share of Common Stock $ 1.53 $ 1.57 $ 2.43 $ 2.48 $ 1.84 $ 1.75
Dividends Declared per Share
of Common Stock $ 0.348 $ 0.338 $ 0.695 $ 0.675 $ 1.370 $ 1.335
Average Common Shares
Outstanding 48,056,163 46,801,765 47,903,448 46,658,774 47,601,934 45,492,862
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
<TABLE>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Twelve Months
Ended March 31 Ended March 31
1995 1994 1995 1994
(Thousands of Dollars)
<CAPTION>
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 116,478 $ 115,717 $ 88,145 $ 79,924
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and depletion 38,965 37,777 76,078 73,959
Deferred Federal income tax (3,653) 8,771 (1,609) 11,026
Gain on sale of investment in Canadian gas company - - - (20,462)
Write-off of investment in propane company - - - 17,617
Amortization of investment tax credit (526) (588) (1,012) (1,124)
(Income) from energy services investments (4,022) (2,627) (6,831) (1,472)
Dividends received from energy services investments 1,366 2,365 3,321 8,530
Allowance for equity funds used during construction (518) (1,066) (1,528) (1,960)
Change in accounts receivable, net (144,286) (237,337) 124,957 (80,093)
Change in accounts payable 1,584 15,009 (42,517) 34,006
Gas inventory and prepayments 69,902 85,356 (9,956) (4,050)
Other 55,502 61,972 15,226 26,651
Cash provided by operating activities 130,792 85,349 244,274 142,552
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 14,197 15,021 29,004 74,300
Common stock proceeds receivable - 44,910 - -
Issuance of long-term debt 13,382 13,542 11,917 192,742
Commercial paper - 11,500 - 62,000
27,579 84,973 40,921 329,042
Repayments
Preferred stock (300) (300) (300) (300)
Long-term debt - - - (180,000)
Commercial paper - (11,500) - (62,000)
27,279 73,173 40,621 86,742
Dividends paid (33,580) (31,792) (65,792) (61,911)
Other (27) (146) 252 (244)
Cash (used in) provided by financing activities (6,328) 41,235 (24,919) 24,587
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (excluding allowance
for equity funds used during construction) (96,729) (109,014) (185,211) (222,252)
Trust funds, utility construction - - - 15,494
Proceeds from sale of investment in Canadian gas company - 11,691 - 41,718
Other (3,933) (83) (7,288) 14,546
Cash used in investing activities (100,662) (97,406) (192,499) (150,494)
Change in Cash and Temporary Cash Investments 23,802 29,178 26,856 16,645
Cash and Temporary Cash Investments at Beginning of Period 53,491 21,259 50,437 33,792
Cash and Temporary Cash Investments at End of Period $ 77,293 $ 50,437 $ 77,293 $ 50,437
Temporary cash investments are short-term marketable securities purchased with maturities of three months or less that are
carried at cost which approximates their fair value.
Supplemental disclosures of cash flows
Income taxes $ 22,500 $ 17,400 $ 42,000 $ 36,200
Interest $ 26,431 $ 25,951 $ 51,373 $ 52,322
See accompanying notes to condensed consolidated financial statements.
</TABLE>
<PAGE>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. In the opinion of the Company, the accompanying unaudited
Condensed Consolidated Financial Statements contain all
adjustments necessary to present fairly the financial position
of the Company as of March 31, 1995 and 1994, and the results
of operations for the three, six and twelve months ended March
31, 1995 and 1994, and cash flows for the six and twelve
months ended March 31, 1995 and 1994. Certain
reclassifications were made to conform prior period financial
statements with the current period financial statement
presentation. All other adjustments were of a normal,
recurring nature.
As permitted by the rules and regulations of the Securities
and Exchange Commission, the Condensed Consolidated Financial
Statements do not include all of the accounting information
normally included with financial statements prepared in
accordance with generally accepted accounting principles.
Accordingly, the Condensed Consolidated Financial Statements
should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1994.
2. The Company's business is influenced by seasonal weather
conditions. Annual revenues are substantially realized during
the heating season (November 1 to April 30) as a result of the
large proportion of residential heating sales compared with
total sales. Accordingly, results of operations are
historically most favorable in the second quarter (three
months ended March 31) of the Company's fiscal year, with
results of operations being next most favorable in the first
quarter, while results for the third quarter are marginally
unprofitable, and losses are incurred in the fourth quarter.
Also, results of operations are affected by the timing and
comparative amounts of base tariff rate changes. Therefore,
the interim Condensed Consolidated Statement of Income should
not be taken as a prediction for any future period.
The Company's tariff contains a weather normalization
adjustment that requires recovery from or refund to firm
customers of shortfalls or excesses of firm net revenues
during a heating season due to variations from normal weather,
which is the basis for projecting base tariff revenue
requirements. Effective October 1, 1994, the adjustment was
modified to exclude weather variations of less than 2.2% from
normal.
<PAGE>
3. Investment in Iroquois Pipeline
A Company subsidiary, North East Transmission Co., Inc.
(NETCO), owns an 11.4% interest in the Iroquois Gas
Transmission System, L.P. (Iroquois), which partnership owns
and operates a 375-mile pipeline from Canada to the Northeast.
The subsidiary's investment in Iroquois was $21.9 million at
March 31, 1995.
In 1992, Iroquois was informed by the U.S. Attorneys' Offices
of various districts of New York of a civil investigation of
alleged violations of the U.S. Army Corps of Engineers (COE)
permit, a related State Water Quality Certification and/or the
Federal Clean Water Act. Further, agency investigations of
matters related to the construction of the Iroquois Pipeline
have been commenced by the COE and the Federal Energy
Regulatory Commission (FERC). Iroquois also has received
inquiries from the Federal Department of Transportation and
the New York State Public Service Commission (PSC) concerning
certain construction activities. Civil penalties could be
imposed if violations of Iroquois' governmental authorizations
are shown to have occurred. No proceedings in connection with
these investigations and inquiries have been commenced.
Also in 1992, a criminal investigation of Iroquois was
initiated and is being conducted by Federal authorities
pertaining to various matters related to the construction of
the pipeline. To date, no criminal charges have been filed.
Iroquois' management believes the pipeline construction and
right-of-way activities were conducted in a responsible
manner. However, Iroquois deems it probable that indictments
will be sought in connection with this investigation and in
them substantial fines and other sanctions.
The Company has been informed that Iroquois and its counsel
will confer with those responsible for the civil and criminal
investigations, from time to time, both to gain an informed
understanding of the focus and direction of the investigations
in order to defend itself and to explore possible resolutions
that may be acceptable to all parties. Although a
comprehensive resolution of these matters could have a
material adverse effect on Iroquois' financial condition, the
amount of potential loss cannot be reasonably estimated at
this time and no understandings or agreements have been
reached that have led Iroquois to make provision for any
liability associated with the potential disposition of these
matters. Based on information currently available, the
Company does not believe that the resolution of these matters
will have a material effect on its consolidated financial
results for the fiscal year.
<PAGE>
4. Environmental Matters
Historically, the Company, or a predecessor entity to the
Company, owned or operated several former manufactured gas
plant (MGP) sites. These sites have been identified for the
New York State Department of Environmental Conservation (DEC)
for inclusion on appropriate waste site inventories. In
certain circumstances former MGP sites may give rise to
environmental cleanup responsibilities for the Company.
Two MGP sites are under active consideration by the Company.
One site, which is located on property still owned by the
Company, is the former Coney Island MGP facility located in
Brooklyn, New York. This site is the subject of continuing
interim remedial action under the direction of the U.S. Coast
Guard. Moreover, the Company recently has completed
negotiations with the DEC with respect to a consent order
addressing the overall remediation of the Coney Island site in
accordance with state law. Upon execution of the consent
order, a schedule of investigative and cleanup activities will
commence, leading to a cleanup over the next several years.
The other site currently is owned by the City of New York
(City). The Company and the City are in the process of
discussing a mutual approach to sharing potential
environmental responsibility for this site. The Company
believes it is likely that, at a minimum, investigative costs
will be incurred by the Company.
The DEC is maintaining open files and requiring the Company to
continue monitoring or related investigatory efforts at two
other Company-owned properties.
Except as described above, no administrative or judicial
proceedings or claims involving other former MGP sites have
been initiated. Although the potential cost of cleanup with
respect to these other sites may be material if the Company
ever is compelled to address these sites, the Company cannot
at this time determine the cost or extent of any cleanup
efforts if cleanup ultimately should be required.
Based upon the terms of the consent order for the Coney Island
site and costs of investigation for the other MGP site under
active consideration, the Company believes that the minimum
cost of MGP-related environmental cleanup will be
approximately $34 million, which, based upon current
information, will be primarily for the Coney Island site.
This amount includes approximately $4 million of costs
expended as of March 31, 1995. The Company's actual MGP-
related costs may be substantially higher, depending upon
remediation experience, eventual end use of the sites, and
environmental conditions not addressed in the consent order or
<PAGE>
current investigative plans. Such potential additional costs
are not subject to estimation at this time.
As of March 31, 1995, the Company had an unpaid liability of
$29.8 million and a related unamortized regulatory asset of
$33.4 million. By order issued February 16, 1995, the PSC
approved the Company's July 1993 petition to defer the costs
associated with environmental site investigation and
remediation incurred in 1993 and thereafter. Pursuant to that
order, rates commencing in October 1994 reflect the recovery
of $4.1 million of interim response costs deferred as of
September 30, 1993 over a five-year period. Commencing in
October 1995 and 1996, the Company is permitted to reflect in
rates increments to the deferred balance of environmental site
investigation and remediation costs recorded as of September
30, 1994 and 1995, respectively, each over a five-year period.
The recovery of these costs in rates is conditioned upon the
absence of a PSC determination that such costs have not been
reasonably or prudently incurred. In addition, the Company
must demonstrate that it has taken all reasonable steps to
obtain cost recovery from all available funding sources,
including other responsible parties and insurance carriers.
5. Regulatory Assets
Statement of Financial Accounting Standards (SFAS) No. 121,
issued in March 1995 and effective for 1996, establishes
accounting standards for the impairment of long-lived assets.
The new standard requires impairment losses on long-lived
assets to be recognized when an asset's book value exceeds its
expected future cash flows (undiscounted). SFAS No. 121 also
requires that regulatory assets which are no longer probable
of recovery through future revenues be charged to earnings.
This statement is not expected to have an impact on the
Company's financial condition or results of operations upon
adoption. Regulatory assets arise from the allocation of
costs and revenues to accounting periods for ratemaking and
regulatory purposes differently from bases generally applied
by nonregulated companies in accordance with SFAS No. 71,
"Accounting for Certain Types of Regulation."
The Company had net regulatory assets of approximately $116
million as of March 31, 1995, which included principally $82.2
million related to Federal income taxes and $33.4 million
related to deferred environmental costs. These amounts are
included in Deferred Charges in the Condensed Consolidated
Balance Sheet at March 31, 1995. In the event that it was no
longer subject to the provisions of SFAS No. 71, the Company
estimates that the write-off of these net regulatory assets
could result in a charge to net income of approximately $70
million.<PAGE>
<PAGE>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Operating Results
The following is a summary of items affecting comparative earnings
and a discussion of the material changes in revenues and expenses
during the following periods:
(1) Three Months ended March 31, 1995 vs. Three Months ended
March 31, 1994.
(2) Six Months ended March 31, 1995 vs. Six Months ended March 31,
1994.
(3) Twelve Months ended March 31, 1995 vs. Twelve Months ended
March 31, 1994.
Consolidated income available for common stock for the second
quarter of fiscal 1995 was $73.6 million, or $1.53 per share,
compared to $73.5 million, or $1.57 per share, for the second
quarter of last year. Earnings for the six months ended March 31,
1995 were $116.3 million, or $2.43 per share, compared to $115.5
million, or $2.48 per share, in the six months ended March 31,
1994. Consolidated earnings for the twelve months ended March 31,
1995 were $87.8 million, or $1.84 per share, compared to $79.6
million, or $1.75 per share, for the same period a year ago.
Earnings per share amounts in 1995 reflect the effect of a higher
number of shares outstanding.
Income from utility operations reflects continued heating sales
additions, savings due to early retirement programs and other
ongoing cost-reduction efforts, as well as improved margins in
large-volume markets both within and outside our traditional
service area. Under the three-year rate plan effective October 1,
1994, the allowed rate of return on utility common equity is 11% in
1995, compared to 12.1% in 1994. Improved performance-based
incentive provisions are expected to increase the rate of returns
above the allowed level on utility common equity in 1995.
The effect on utility revenues of the extreme variations due to
warmer or colder than normal weather during the current and past
heating seasons, respectively, was largely offset by the weather
normalization adjustment included in the Company's tariff.
However, effective October 1, 1994, the adjustment was modified to
exclude weather variations of less than 2.2% from normal. This
modification had caused an estimated reduction in utility revenues
of approximately $2 million in the quarter ended March 31, 1995 and
<PAGE>
approximately $5 million for both the six and twelve month periods
ended March 31, 1995.
Earnings from gas exploration and production as well as from
energy-related investments in cogeneration, pipelines, storage
projects and associated activities were slightly lower compared to
last year's periods. Comparative earnings for the most part
reflect lower gas production volumes, largely due to weather-
related demand which adversely affected gas prices this winter.
However, substantial price protection was provided by use of
financial hedging of gas prices as discussed below. Portions of
estimated future production are also covered by hedge positions.
Based upon degree days, weather in the second quarter of fiscal
1995 was 7.3% warmer than normal and 18.2% warmer than the second
quarter of last year. Firm gas sales in the quarter ended March
31, 1995 were 54,410 MDTH, compared to 61,679 MDTH in the quarter
ended March 31, 1994. Firm gas sales were 88,951 MDTH for the six
months ended March 31, 1995 representing a decrease of 12.1% from
the same period last year, which was 2.7% colder. Weather for the
twelve months ended March 31, 1995 was 13.4% warmer than normal and
17.6% warmer than the twelve months ended March 31, 1994.
Consequently, firm gas sales of 121,211 MDTH decreased 9.2%
compared with sales in the corresponding period last year.
Net revenues (utility operating revenues less cost of gas of
utility sales) decreased 2.9%, 1.7% and .14%, respectively, for the
three, six and twelve months ended March 31, 1995 compared with the
corresponding period last year. The decrease was primarily
attributable to the modification of the terms of the weather
normalization adjustment.
Gas production and other revenues primarily reflect variations in
revenues from gas exploration and production operations in all
periods presented. Gas exploration and production revenues for the
quarter ended March 31, 1995 were 12.9% lower than revenues in the
comparative period last year, reflecting a 1 billion cubic foot
(BCF) decrease, primarily in off-shore production. The effective
price (average cash price received for production net of realized
hedging gains and losses) remained constant due to the use of
hedging strategies, which added $1.9 million to revenues. Gas
exploration and production revenues for the six months ended March
31, 1995 were 11.7% lower than the six months ended March 31, 1994,
when off-shore production was 1.1 BCF higher, and the effective
price was 7.2% higher due to higher cash prices received for
production. Hedging gains for the six months ended March 31, 1995
amounted to $2.8 million. Revenues for the twelve months ended
March 31, 1995 were 14.3% lower than the twelve months ended March
31, 1994, reflecting a 4.1 BCF decrease in volume due to the sale
of Canadian operations in 1994, and a 1.0 BCF decrease in U.S.
production. Canadian operations were sold to realize the profit
<PAGE>
and value embodied in the investment. The effective price for the
comparative twelve month periods remained constant, reflecting
lower Canadian prices offset by higher U.S. prices received last
year. Hedging gains for the twelve months ended March 31, 1995
were $2.7 million.
The decrease in operation and maintenance expense for the three,
six and twelve month periods ended March 31, 1995 reflects ongoing
productivity savings and lower operating expense due to warmer
weather.
Increases in depreciation expense in the current periods primarily
are a result of utility property additions.
General taxes principally include state and city taxes on utility
revenue and property. The decrease for three, six and twelve month
periods ended March 31, 1995 is related to the decrease in utility
revenues.
Federal income tax expense in the three, six and twelve months
reflects changes in pre-tax operating income.
Interest charges on long-term debt in all periods generally reflect
higher average subsidiary borrowings. Other interest expense
reflects accruals related to regulatory settlement items.
Dividends on preferred stock reflect reductions in the level of
preferred stock outstanding due to sinking fund redemptions.
Income from energy services investments includes continued positive
results from the Company's investments in cogeneration, pipeline
and storage projects. (See Notes to Condensed Consolidated
Financial Statements, Note 3., " Investment in Iroquois Pipeline.")
The twelve months ended March 31, 1994 included operating losses
related to a propane investment which was sold in September 1993.
Financial Condition
Cash provided by operating activities during periods ended March
31, 1995 remained strong and has been enhanced substantially by the
timing of utility gas cost recoveries, which have been affected by
dramatic swings in weather compared with prior periods. Changes in
current assets and liabilities at March 31, 1995 compared to March
31, 1994 are substantially related to weather variations, while
such changes compared to September 30, 1994 are seasonal in nature.
Consolidated capital expenditures for the twelve months ended March
31, 1995 were $186.7 million, of which $87.7 million was related to
non-utility activities. Capital expenditures for fiscal years 1995
and 1996 are estimated to be approximately $185 million in each
year, including $75 million per year related to non-utility
activities.
<PAGE>
The Company currently has bank lines of credit of $75 million,
which secure the issuance of commercial paper. The lines can be
increased to $150 million by December 1995. Related borrowings,
when necessary, are used primarily to finance seasonal working
capital requirements. In addition, two subsidiaries have credit
lines totalling $84 million, which for the most part support
borrowings under a revolving loan agreement.
Depending on market conditions, the Company expects to issue tax-
exempt debt in an advantageous form in conjunction with the
possible refunding of the Company's 9% and 8.75% Gas Facilities
Revenue Bonds, which are callable on or after May 15, 1995 and
July 1, 1995, respectively, at optional redemption prices of $102.
Rate Matters
Rate Settlement Plan: In October 1994, the PSC approved a new
three-year rate plan. The agreement allows an 11.0% return on
common equity devoted to utility operations in fiscal 1995, the
first year of the new rate plan, compared to 12.1% in fiscal 1994.
However, improved incentive provisions are expected to result in an
earned rate of return in 1995 in excess of the allowed return. The
allowed return will be adjusted in each of the last two years of
the rate plan to reflect changes in capital costs.
In addition to improved earnings sharing provisions, the plan
provides new incentives, more flexible pricing in the large-volume
competitive markets, and rate design modifications to improve the
Company's competitive position. The Company is permitted to retain
100% of any earnings from discrete incentives (up to 100 basis
points on utility equity.) With respect to earnings sharing
provisions, the Company can retain 75% of the first 100 basis
points of earnings in excess of the allowed return on utility
equity unrelated to discrete incentives, and 50% of any additional
earnings above that level. In addition, the Company will retain
20% of margins above $1.8 million from sales of the Company's New
York Market Hub (essentially off-system sales), taking advantage of
competitive opportunities afforded by Federal and state regulatory
policies. The agreement provides for no base rate increase in
1995; however, the Company is permitted to amortize to income
approximately $1.3 million of previously deferred credits. Base
rate increases in years two and three, if any, will be limited to
the rate of inflation and will be partially offset by the use of
additional available deferred credits. See Notes to the Condensed
Consolidated Financial Statements, Note 5., "Regulatory Assets"
Restructuring Proceeding: In December 1994, the PSC issued its
order in the gas industry restructuring case. The proceeding was
instituted by the PSC in response to the restructuring of
interstate pipeline services by Federal Energy Regulatory
Commission Order 636, which took effect in November 1993.
<PAGE>
The PSC order addresses incentives and margin-sharing issues
consistent with the Company's new rate plan and provides utilities
broad discretion to employ market-based pricing (subject to caps)
for services offered to large-volume, or non-core, customers with
dual-fuel capability. The order allows the Company to continue to
offer customers a complete array of bundled sales services as well
as gas-supply pricing flexibility generally comparable to that
offered by unregulated competitors to large volume customers;
however, it continues to prohibit the Company's gas marketing
subsidiary from operating within the Company's territory. The
Company must offer core customers, reliant solely on gas as a
heating fuel, access to available pipeline transportation and
storage capacity with provision for recovery of transition costs
and full margin transportation rates. The order reduces the
minimum transportation service volume requirement for customers,
while encouraging the ultimate elimination of such a requirement.
Lastly, the order calls for a new proceeding currently underway to
evaluate gas purchasing practices and revised gas cost recovery
mechanisms and invites proposals for providing service to small-
volume customers aggregated into gas purchasing groups.
The Company is fully prepared to meet the requirements of the PSC
order. It has filed tariffs applicable to both core and non-core
markets in compliance with the PSC order, and, pursuant to the
terms of the three-year rate settlement, has proposed an incentive
gas cost recovery mechanism. That mechanism is being considered in
the new proceeding described above. The PSC is expected to act on
the proposal by September 1, 1995.
Environmental Matters
The Company is subject to various Federal, state and local laws and
regulatory programs related to the environment. These
environmental laws govern both the normal, ongoing operations of
the Company as well as the cleanup of historically contaminated
properties. Ongoing environmental compliance activities, which
historically have not been material, are integrated with the
Company's regular operations and maintenance activities. However,
as of March 31, 1995 the Company had an unamortized deferred
balance of $33.4 million representing its estimate of the minimum
cost associated with investigation and remediation at former MGP
sites. Of this amount, $4.3 million was expended by March 31,
1995. (See Notes to Condensed Consolidated Financial Statements,
Note 4., "Environmental Matters.")<PAGE>
<PAGE>
REVIEW OF INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has performed reviews in accordance with
standards established by the American Institute of Certified Public
Accountants of the Condensed Consolidated Financial Statements for
the periods set forth in their report shown on page 16.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Brooklyn Union Gas Company:
We have reviewed the accompanying condensed consolidated balance
sheets of The Brooklyn Union Gas Company (a New York corporation)
and subsidiaries as of March 31, 1995 and 1994, and the related
condensed consolidated statements of income for the three, six and
twelve month periods ended March 31, 1995 and 1994, and the
condensed consolidated statements of cash flows for the six and
twelve month periods ended March 31, 1995 and 1994. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which
is the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the financial statements referred to above
for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet and consolidated
statement of capitalization of The Brooklyn Union Gas Company and
subsidiaries as of September 30, 1994, and the related consolidated
statements of income, retained earnings, and cash flows for the
year then ended (not presented herein) and, in our report dated
October 26, 1994, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information
set forth in the accompanying condensed consolidated balance sheet
as of September 30, 1994 is fairly stated in all material respects
in relation to the consolidated balance sheet from which it has
been derived.
ARTHUR ANDERSEN LLP
New York, New York
April 26, 1995<PAGE>
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company has from time to time been named as a defendant in
various legal proceedings. In the opinion of management, the
ultimate disposition of currently asserted claims will not have a
materially adverse impact on the Company's financial position or
results of operations. For information regarding governmental
investigations of alleged environmental, civil and criminal
violations involving the Iroquois Pipeline, see the Notes to
Condensed Consolidated Financial Statements, Note 3., "Investment
in Iroquois Pipeline." For information regarding environmental
matters affecting the Company, see Note 4., "Environmental
Matters."
Item 5. Other Information
Effective April 1, 1995, gas marketing activities of BRING Gas
Services Corporation, a wholly-owned subsidiary of the Company,
were joined pursuant to investments in a LLC with those of Pennzoil
Gas Marketing Co., a wholly-owned subsidiary of Pennzoil
Corporation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement re computation of per share earnings.
(15) Letter re unaudited interim financial information.
(27) Financial data schedule.
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended
March 31, 1995.
<PAGE>
<PAGE>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
behalf of the undersigned thereunto duly authorized.
THE BROOKLYN UNION GAS COMPANY
(Registrant)
Date May 11, 1995 s/ V.D. Enright
V.D. Enright
Senior Vice President and
Chief Financial Officer
Date May 11, 1995 s/ R.M. Desmond
R.M. Desmond
Vice President, Comptroller and
Chief Accounting Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000014525
<NAME> BROOKLYN UNION GAS
<MULTIPLIER> 1000
<CURRENCY> U.S DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,259,031
<OTHER-PROPERTY-AND-INVEST> 296,328
<TOTAL-CURRENT-ASSETS> 479,293
<TOTAL-DEFERRED-CHARGES> 168,491
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,203,143
<COMMON> 16,071
<CAPITAL-SURPLUS-PAID-IN> 492,804
<RETAINED-EARNINGS> 362,352
<TOTAL-COMMON-STOCKHOLDERS-EQ> 871,227
0
6,900
<LONG-TERM-DEBT-NET> 714,759
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
300
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 609,957
<TOT-CAPITALIZATION-AND-LIAB> 2,203,143
<GROSS-OPERATING-REVENUE> 839,963
<INCOME-TAX-EXPENSE> 59,791
<OTHER-OPERATING-EXPENSES> 639,122
<TOTAL-OPERATING-EXPENSES> 698,913
<OPERATING-INCOME-LOSS> 141,050
<OTHER-INCOME-NET> 1,798
<INCOME-BEFORE-INTEREST-EXPEN> 142,848
<TOTAL-INTEREST-EXPENSE> 26,370
<NET-INCOME> 116,478
171
<EARNINGS-AVAILABLE-FOR-COMM> 116,307
<COMMON-STOCK-DIVIDENDS> 33,409
<TOTAL-INTEREST-ON-BONDS> 23,083
<CASH-FLOW-OPERATIONS> 130,792
<EPS-PRIMARY> 2.43
<EPS-DILUTED> 2.43
</TABLE>
Exhibit 15
1345 Avenue of the Americas
New York, NY 10105
May 11, 1995
The Brooklyn Union Gas Company
One MetroTech Center
Brooklyn, NY 11201
Gentlemen:
We are aware that The Brooklyn Union Gas Company has incorporated
by reference in its previously filed Registration Statements No.
33-66182, 33-61283, and 33-51561, its Form 10-Q for the quarter
ended March 31, 1995 which includes our report dated April 26, 1995
covering the unaudited interim financial information contained
therein. Pursuant to Regulation C of the Securities Act of 1933,
that report is not considered a part of the registration statements
prepared or certified by our firm within the meaning of Sections 7
and 11 of the Act.
Very truly yours,
ARTHUR ANDERSEN LLP
