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 December 31, 1994
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 February 1, 1995
$.33 1/3 par value 48,081,843 <PAGE>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
INDEX
Part I. Financial Information Page No.
Condensed Consolidated Balance Sheet -
December 31, 1994 and 1993, and September 30,
1994 2
Condensed Consolidated Statement of Income -
Three and Twelve Months Ended December 31,
1994 and 1993 3
Condensed Consolidated Statement of Cash Flows -
Three and Twelve Months Ended December 31,
1994 and 1993 4
Notes to Condensed Consolidated Financial
Statements 5
Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
Review of Independent Public Accountants 14
Report of Independent Public Accountants 15
Part II. Other Information
Item 1 - Legal Proceedings 16
Item 4 - Submission of Matters to a Vote
of Security Holders 16
Item 5 - Other Information 16
Item 6 - Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
<TABLE>
<CAPTION>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
December 31,
December 31, September 30,
1994
1993 1994
(Unaudited)
(Unaudited) (Audited)
______________
______________ ______________
(Thousands of Dollars)
<S> <C>
<C> <C>
Assets
Property
Utility, at cost $ 1,620,198
$ 1,531,846 $ 1,599,452
Accumulated depreciation (366,723)
(330,148) (354,925)
Gas exploration and production, at cost 296,124
226,190 276,659
Accumulated depletion (122,390)
(96,679) (115,890)
______________
______________ ______________
1,427,209
1,331,209 1,405,296
______________
______________ ______________
Investments in Energy Services 99,841
79,102 91,283
______________
______________ ______________
Current Assets
Cash 13,664
16,094 11,610
Temporary cash investments -
25 41,881
Accounts receivable 335,049
382,460 193,130
Allowance for uncollectible accounts (15,086)
(14,323) (14,963)
Gas in storage, at average cost 87,796
97,656 96,076
Materials and supplies, at average cost 11,912
11,622 11,356
Prepaid gas costs 9,610
10,899 14,667
Other 23,305
16,907 31,441
______________
______________ ______________
466,250
521,340 385,198
______________
______________ ______________
Deferred Charges 142,437
158,271 147,297
______________
______________ ______________
$ 2,135,737
$ 2,089,922 $ 2,029,074
Capitalization and Liabilities
Capitalization
Common stock, $.33 1/3 par value stated at $ 501,568
$ 472,559 $ 494,770
Retained earnings 305,491
282,269 279,466
______________
______________ ______________
Total common equity 807,059
754,828 774,236
Preferred stock, redeemable 7,200
7,500 7,200
Long-term debt 713,480
695,100 701,377
______________
______________ ______________
1,527,739
1,457,428 1,482,813
______________
______________ ______________
Current Liabilities
Accounts payable 147,061
185,853 132,491
Dividends payable 17,206
16,329 16,609
Commercial Paper 4,000
11,500 -
Taxes accrued 38,390
27,977 15,213
Customer deposits 22,650
22,086 22,445
Customer budget plan credits 39,617
33,743 18,358
Interest accrued and other 32,749
49,140 45,807
______________
______________ ______________
301,673
346,628 250,923
______________
______________ ______________
Deferred Credits
Federal income tax 234,391
225,166 230,316
Unamortized investment tax credit 21,736
22,805 22,000
Other 50,198
37,895 43,022
______________
______________ ______________
306,325
285,866 295,338
______________
______________ ______________
$ 2,135,737
$ 2,089,922 $ 2,029,074
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
[CAPTION]
THE BROOKLYN UNION GAS COMPAN
CONDENSED CONSOLIDATED STAT
(Unaudited)
Three Months
Ended December 31,
__________________________
1994 1993
____________ ___________
(Thousan
[S] [C] [C] [C]
Operating Revenues
Utility sales $ 344,180 $ 354,848 $
Gas production and other 14,168 16,630
____________ ___________
358,348 371,478
Operating Expenses
Cost of Gas 135,125 145,624
Operation and maintenance 91,357 94,445
Depreciation and depletion 18,313 17,304
General taxes 36,778 39,349
Federal income tax 21,622 21,631
____________ ___________
Operating Income 55,153 53,125
Other Income (Expense)
Gain on sale of investment
in Canadian gas company - -
Write-off of investment
in propane company - -
Income from equity investments 1,620 1,480
Other, net (628) (69)
Federal income tax (166) 92
Income Before Interest Charges 55,979 54,628
Interest Charges
Long-term debt 12,058 11,859
Other 1,082 606
13,140 12,465
Net Income 42,839 42,163
Dividends on Preferred Stock 86 90
Income Available for
Common Stock $ 42,753 $ 42,073
$
Per Share of Common Stock $ 0.90 $ 0.90
$
Dividends Declared per Share
of Common Stock $ 0.348 $ 0.338
$
Average Common Shares
Outstanding 47,750,732 46,515,782
See accompanying notes to condensed consolidated financial statements.
Y AND SUBSIDIARIES
EMENT OF INCOME
Twelve Months
Ended December 31,
___________________________
1994 1993
____________ ___________
ds of Dollars)
[C]
1,268,970 $ 1,164,248
62,473 65,451
____________ ___________
1,331,443 1,229,699
550,158 475,820
385,956 371,928
70,682 66,948
148,171 145,129
40,977 43,061
____________ ___________
135,499 126,813
- 20,462
- (17,617)
5,479 997
(2,029) (3,965)
824 652
139,773 127,342
47,099 46,062
4,615 3,081
51,714 49,143
88,059 78,199
347 361
87,712 $ 77,838
1.85 $ 1.74
1.360 $ 1.328
47,288,335 44,766,565
<PAGE>
<TABLE>
<CAPTION>
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Twelve Months
Ended December 31 Ended December 31,
1994 1993 1994 1993
(Thousands of Dollars)
<S> <C>
<C> <C> <C>
OPERATING ACTIVITIES
Net income $
42,839 $ 42,163 $ 88,059 $ 78,199
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and depletion
19,572 18,820 75,264 74,056
Deferred Federal income tax
169 17,066 (6,071) 20,395
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
(264) (269) (1,069) (1,051)
(Income) from energy services investments
(1,620) (1,480) (5,479) (997)
Dividends received from energy services investments
1,294 438 5,593 7,166
Allowance for equity funds used during construction
(243) (449) (1,871) (1,766)
61,747 76,289 154,426 173,157
Effect of changes in working capital and other
Accounts receivable, net
(141,994) (151,135) 40,458 (72,072)
Accounts payable
18,036 15,424 (29,004) 41,697
Gas inventory and prepayments
13,337 7,686 11,149 (23,734)
Other
53,908 41,408 42,127 (7,510)
(56,713) (86,617) 64,730 (61,619)
Cash provided by (used in) operating activities
5,034 (10,328) 219,156 111,538
FINANCING ACTIVITIES
Sale of common stock
6,837 52,410 29,165 73,151
Issuance of long-term debt
12,103 5,800 18,380 185,800
Commercial paper
4,000 11,500 4,000 11,500
22,940 69,710 51,545 270,451
Repayments
Preferred stock
- - (300) (300)
Long-term debt
- - - (180,000)
Commercial paper
- - (11,500) (15,000)
22,940 69,710 39,745 75,151
Dividends paid
(16,736) (15,848) (64,890) (60,592)
Trust funds, utility construction
- - - 32,718
Other
(78) (24) 52 1,529
Cash provided by (used in) financing activities
6,126 53,838 (25,093) 48,806
INVESTING ACTIVITIES
Capital expenditures (excluding allowance
for equity funds used during construction)
(49,905) (58,148) (189,252) (228,298)
Proceeds from sale of investment in Canadian gas company
- 11,691 - 41,718
Other
(1,082) (2,193) (7,266) 28,442
Cash used in investing activities
(50,987) (48,650) (196,518) (158,138)
Change in Cash and Temporary Cash Investments $
(39,827) $ (5,140) $ (2,455) $ 2,206
Cash and Temporary Cash Investments at End of Period $
13,664 $ 16,119 $ 13,664 $ 16,119
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 $
- $ - $ 36,900 $ 27,600
Interest $
15,701 $ 15,425 $ 50,995 $ 52,322
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<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
December 31, 1994 and 1993, and the results of operations for the
three and twelve months ended December 31, 1994 and 1993, and cash
flows for the three and twelve months ended December 31, 1994 and
1993. Certain reclassifications were made to conform prior period
financial statements with the current period financial statement
presentation.
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.
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. 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.
3. Investments in Energy Services
A. 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 $20.2 million at December 31,
1994.
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 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 expect
to meet 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, if and when appropriate, 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 the 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.
B. Cogeneration Projects: A Company subsidiary, Gas Energy Inc.
(GEI), through an affiliate, owns a 50% partnership interest, and has
invested approximately $55.7 million as of December 31, 1994, in a
project to construct, own and operate a 100-megawatt cogeneration
plant at John F. Kennedy International Airport in Queens, New York.
The estimated cost of the project is approximately $302 million, of
which $175 million is being financed by proceeds from bonds issued
by the Port Authority of New York and New Jersey and guaranteed by
an international banking group. The partners are committed to make
equal contributions for estimated project costs above $175 million.
Construction was completed in January 1995, electricity and heating
are being provided and commercial operation of the plant is scheduled
for the second quarter of 1995.
In addition, a similar project for a 40-megawatt cogeneration plant
at the State University of New York at Stony Brook, New York is under
construction. The debt financing is being provided through $79
million of tax-exempt Suffolk County Industrial Development Revenue
Bonds and is guaranteed by a bank letter of credit. Commercial
operation is scheduled for 1995. Another Company subsidiary, Gas
Energy Cogeneration, Inc. (GECI), through an affiliate, owns a 50%
partnership interest in the project, estimated to cost $92.6 million.
As of December 31, 1994, the subsidiary had funded $3.8 million of
an expected total of $6.8 million as its share of the project.
4. Environmental Matters
The Company is involved in environmental site investigation,
implementation of interim remedial measures, and consideration of
long-term remedial solutions at the former manufactured gas plant
(MGP) site in Coney Island that was owned and operated by a
predecessor company. This property was the subject of a notice by
the City of New York in January 1993 alleging that the site presented
an imminent and substantial endangerment to health and the
environment and stating that the City intended to bring a citizens'
suit under the Federal Resource Conservation and Recovery Act and
related statutes to compel cleanup and recover its own response
costs. The Company has denied the City's allegations, but has met
informally with City officials, apprised them of the Company's own
ongoing environmental investigation, and committed itself to keeping
the City informed of developments. The City has not filed suit as
of this date.
In addition, the Company, in cooperation with the U.S. Coast Guard,
has been responding to pollution incidents occurring and reported to
governmental authorities during the summer of 1993, involving the
apparent seep of oil into Coney Island Creek from the Coney Island
site. This response has included the construction of an interim
response measure (IRM) to contain and recover any such oil seep.
While expenses to date have not been material with respect to the
pollution incidents, the Coast Guard has not issued its final
approval of this response measure and the Company cannot predict how
long the IRM will operate or whether additional containment or
response measures will be required or what such measures would
cost.
In October 1994, the Company had an initial meeting with the New York
State Department of Environmental Conservation (DEC) for the purpose
of reaching a consensual agreement under state environmental laws for
a long-term site management plan for the Coney Island site. The
discussions with the DEC to date have been preliminary and the
Company is unable to predict which, if any, of the options discussed
with the DEC might be mutually acceptable. Based on these
preliminary discussions, the Company believes that long-term site
management costs will be at least $8.0 million and may be several
times that amount, depending upon the site management option finally
negotiated with the DEC. A consensual agreement is likely to be
reached in 1995. As at September 30, 1994, the Company accrued a
liability of $8.0 million as the minimum estimate of costs most
likely to be incurred and a corresponding regulatory asset, in
addition to $4.1 million of interim response costs previously
recorded. Expenditures related to any site management plan would be
over a number of years.
The Company has been approached by the City of New York with respect
to another former MGP property regarding potential cost sharing of
environmental cleanup costs. This property is currently owned by the
City. The Company and the City have had several meetings but
discussions are at a preliminary stage. Until it becomes clear that
the property will in fact be developed by the City or a third party,
or it is demonstrated that the property presents a significant
environmental risk, the Company cannot determine its potential legal
liabilities and/or financial exposure, if any, associated with this
property.
The Company has notified its insurance carriers of potential claims
regarding environmental cleanup liabilities.
With the exception of the matters referenced above, no significant
administrative or judicial proceedings involving the Company have
been initiated with respect to any other MGP property. Although the
potential cost of cleanup at these 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.
In October 1994, 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, including the $4.1
million in interim response costs accrued in 1993 and the $8.0
million liability accrued as at September 30, 1994. In addition, as
part of its October 1994 order approving the Company's three-year
rate settlement, the PSC approved the deferral of environmental site
investigation and remediation costs incurred after September 30,
1994. Pursuant to that order, rates commencing in October 1994
reflect the recovery of the $4.1 million deferred interim response
costs over a five-year period, and the Company may reflect in rates
commencing October 1995 and October 1996, the deferred balance of
environmental site investigation and remediation costs accrued as at
September 30, 1994 and September 30, 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 been unreasonable or imprudently incurred.
<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 December 31, 1994 vs. Three Months ended
December 31, 1993.
(2) Twelve Months ended December 31, 1994 vs. Twelve Months
ended December 31, 1993.
Consolidated income available for common stock for the three months
ended December 31, 1994 was $42.8 million, compared with $42.1
million for the same period last year. Quarterly per share
earnings were 90 cents in both periods. Income from utility
operations increased, reflecting continued heating sales additions,
savings due to early retirement programs and other ongoing cost
reduction efforts, and improved margins in large volume markets
comprised of customers with the capability of burning gas or oil.
Pursuant to a new three-year rate plan effective October 1, 1994,
the allowed rate of return on utility common equity is 11.0% in
1995, compared with 12.1% in 1994. However, improved incentive
provisions are expected to increase the earned rate of return.
Earnings from gas exploration and production were lower compared to
last year's first quarter, primarily due to the continuing erosion
of gas prices at the wellhead. Although significant price
protection was provided by hedging, future price declines further
could impair profitability. Earnings from investments in energy
services (including cogeneration, pipeline, storage and other
energy-related services) were on a par with last year's first
quarter.
Earnings for the twelve months ended December 31, 1994 were $87.7
million, or $1.85 per share, compared with $77.8 million, or $1.74
per share, for the twelve months ended December 31, 1993. The
increase reflects record earnings from both utility operations and
the Company's subsidiaries in fiscal 1994 in addition to the effect
of comparative quarterly results discussed above. The effect on
utility revenues of variations due to colder- or warmer-than-normal
weather during the heating season is largely offset by the weather
normalization adjustment included in the Company's tariff.
Effective October 1, 1994, the adjustment was modified to exclude
weather variations of less than 2.2% from normal.
Based upon degree days, weather in the first quarter of fiscal 1995
was 20.5% warmer than normal and 19.3% warmer than the first
quarter of last year. Firm gas sales in the quarter ended December
31, 1994 were 34,541 MDTH, compared to 39,574 MDTH in the quarter
ended December 31, 1993. Weather for the twelve months ended
December 31, 1994 was 3.2% warmer than normal and was 0.9% warmer
than the twelve months ended December 31, 1993. Firm gas sales of
128,480 MDTH decreased slightly compared with sales in the
corresponding period last year.
Net revenues (utility operating revenues less cost of gas of
utility sales) remained relatively flat in the three months ended
December 31, 1994, and increased 4.4% in the twelve months ended
December 31, 1994. The increase for the twelve months reflects the
2.7% annual revenue increase which became effective in October 1993
and sales additions, primarily from conversions of oil to gas for
space heating in large-volume markets.
Gas production and other revenues generally reflect lower average
prices.
The decrease in operation and maintenance expense for the quarter
reflects productivity savings and lower operating expense due to
warmer weather. The increase for the twelve months reflects the
effects of severe conditions, necessitating higher operating costs,
during the 1994 winter and higher labor and other costs.
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 the quarter ended December
31, 1994 is related to the decrease in utility revenues. The
increase for the twelve months reflects increases in utility
revenues and the higher property base.
Federal income tax expense in the three and twelve months reflects
changes in pre-tax operating income.
Interest charges on long-term debt in all periods reflect generally
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. The twelve months ended December 31, 1993
included operating losses related to a propane investment which was
sold.
Financial Condition
Cash provided by operating activities during periods ended December
31, 1994 remains strong and has been enhanced substantially by the
timing of utility gas cost recoveries, which have been affected by
dramatic swings in weather compared to prior periods. Changes in
current assets and liabilities at December 31, 1994 compared to
December 31, 1993 are substantially related to weather, while such
changes compared to September 30, 1994 are seasonal. Consolidated
capital expenditures for the twelve months ended December 31, 1994
were $191.1 million, of which $88.3 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.
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
have been used primarily to finance seasonal working capital
requirements. In addition, a subsidiary has a credit line of $70
million, which for the most part supports borrowings under a
revolving loan agreement.
As a result of bond refinancings and redemptions of preferred
stock, the Company's composite cost of capital is the lowest in
decades. At December 31, 1994, the consolidated annualized cost of
long-term debt was 6.9%. Depending on market conditions, the
Company expects to be able 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 in May 1995 and June 1995, respectively, at optional
redemption prices of $102.
Rate Matters
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 increase the earned rate of
return. The allowed return will be adjusted in each of the last
two years 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 above the authorized return on utility equity
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 unrelated to discrete
incentives in excess of its allowed return on utility equity, 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,
which are estimated at $17 million in each year, will be limited to
the rate of inflation and will be partially offset by the use of
additional available deferred credits.
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,
the Company deferred $12.1 million related to response and
investigation costs pertaining to a former manufactured gas plant,
of which $4.1 million was expended by September 30, 1994. (See the
Notes to Condensed Consolidated Financial Statements, Note 4.,
"Environmental Matters.")<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 15.
<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 December 31, 1994 and 1993, and the related
condensed consolidated statements of income for the three and
twelve month periods ended December 31, 1994 and 1993, and the
condensed consolidated statements of cash flows for the three and
twelve month periods ended December 31, 1994 and 1993. 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 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
January 25, 1995<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 3a., "Investments
in Energy Services - Iroquois Pipeline." For information regarding
environmental matters affecting the Company, see Note 4.,
"Environmental Matters."
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held at the office of
the Company, One MetroTech Center, Brooklyn, New York on
Thursday, February 2, 1995.
(b) Robert B. Catell, Kenneth I. Chenault and Edward D. Miller
were elected to serve as directors for three-year terms
expiring in 1998. Donald H. Elliot and Richardson Pratt, Jr.
will continue to serve as directors until the next election in
1996. Andrea S. Christensen, Alan H. Fishman and James Q.
Riordan will continue to serve as directors until their terms
expire in 1997.
(c) The vote to elect Arthur Andersen LLP as independent public
accountants was 38,539,273 shares in favor, or 99% of the
shares voted, and 402,509 shares against, or 1% of the shares
voted. Abstentions of 405,791 shares were recorded.
(d) The proposal by a shareholder for cumulative voting for
directors was rejected by a vote of 25,320,023 shares against,
or 81.2% of the shares voted (15,986 proxies), and 5,876,467
shares in favor, or 18.8% of the shares voted (2,794 proxies).
Abstentions of 1,449,096 shares (1,335 proxies) were recorded.
Item 5. Other Information
Early Retirement Programs
In December 1994, the Company completed a voluntary early
retirement program for non-management employees. A similar program
for management employees was completed in September 1994. Neither
program had a material effect on consolidated net income.
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.
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 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 is preparing tariffs applicable to both core and non-
core markets in compliance with the PSC order.
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
December 31, 1994.
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 February 13, 1995 s/ V.D. Enright
V.D. Enright
Senior Vice President and
Chief Financial Officer
Date February 13, 1995 s/ R.M. Desmond
R.M. Desmond
Vice President, Comptroller and
Chief Accounting Officer
<PAGE>
Exhibit 15
1345 Avenue of the Americas
New York, NY 10105
January 25, 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 December 31, 1994 which includes our report dated January 25,
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
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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