<PAGE>
=================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________
FORM 10-Q
For the quarterly period ended
______________________________
September 30, 1994
Commission File No. 1-6407
______________________
SOUTHERN UNION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 75-0571592
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
504 Lavaca Street, Eighth Floor 78701
Austin, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (512) 477-5981
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange in which registered
___________________ _________________________________________
Common Stock, par American Stock Exchange
value $1 per share
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
___ ___
The number of shares of the registrant's Common Stock outstanding
on November 4, 1994 was 11,509,294.
=================================================================
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
FORM 10-Q
September 30, 1994
Index
PART I. FINANCIAL INFORMATION Page(s)
Item 1. Financial Statements
Statements of consolidated operations -
three and twelve months ended
September 30, 1994 and 1993
Consolidated balance sheet -
September 30, 1994 and 1993 and
June 30, 1994
Statement of common stockholders'
equity - September 30, 1994 and 1993
Statements of consolidated cash flows -
three and twelve months ended
September 30, 1994 and 1993
Notes to consolidated financial statements
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(See "CONTINGENCIES" under Notes to
Consolidated Financial Statements)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 -- Computation of primary
and fully diluted earnings per share
(b) Exhibit 27 -- Financial Data Schedule
(c) Reports on Form 8-K -- None
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Three Months Ended
September 30,
___________________
1994 1993
________ ________
(thousands of dollars,
except shares and per
share amounts)
Operating revenues. . . . . . . . . . . . . $ 69,114 $ 32,416
Gas purchase costs. . . . . . . . . . . . . 28,825 14,336
________ ________
Operating margin. . . . . . . . . . . . . 40,289 18,080
________ ________
Operating expenses:
Operating, maintenance and general. . . . 26,597 11,496
Taxes, other than on income . . . . . . . 6,630 2,401
Depreciation and amortization . . . . . . 8,018 3,479
________ ________
Total operating expenses. . . . . . . . 41,245 17,376
________ ________
Net operating revenues (loss) . . . . . (956) 704
________ ________
Other income (expenses):
Interest on long-term debt. . . . . . . . (9,368) (2,888)
Other interest. . . . . . . . . . . . . . (535) (536)
Other, net. . . . . . . . . . . . . . . . 1,535 811
________ ________
Total other expenses, net . . . . . . . (8,368) (2,613)
________ ________
Loss before income taxes. . . . . . . . (9,324) (1,909)
Federal and state income taxes (benefit). . (3,156) (655)
________ ________
Net loss attributable to common stock . . . $ (6,168) $ (1,254)
======== ========
Net loss per common share . . . . . . . . . $ (.54) $ (.15)
======== ========
Weighted average shares outstanding . . . . 11,449,193 8,271,032
========== =========
See accompanying notes to the consolidated financial statements.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Twelve Months Ended
September 30,
___________________
1994 1993
________ ________
(thousands of
dollars, except
shares and per
share amounts)
Operating revenues. . . . . . . . . . . . . $411,213 $201,408
Gas purchase costs. . . . . . . . . . . . . 225,614 107,943
________ ________
Operating margin. . . . . . . . . . . . . 185,599 93,465
________ ________
Operating expenses:
Operating, maintenance and general. . . . 94,769 47,206
Taxes, other than on income . . . . . . . 33,999 13,231
Depreciation and amortization . . . . . . 26,458 13,233
________ ________
Total operating expenses. . . . . . . . 155,226 73,670
________ ________
Net operating revenues. . . . . . . . . 30,373 19,795
________ ________
Other income (expenses):
Interest on long-term debt. . . . . . . . (30,048) (11,633)
Other interest. . . . . . . . . . . . . . (1,895) (1,504)
Other, net. . . . . . . . . . . . . . . . 7,717 4,058
________ ________
Total other expenses, net . . . . . . . (24,226) (9,079)
________ ________
Earnings before income taxes and
discontinued operation. . . . . . . . 6,147 10,716
Federal and state income taxes. . . . . . . 2,683 3,507
________ ________
Earnings from continuing operations . . . . 3,464 7,209
Loss from discontinued operation,
net of tax. . . . . . . . . . . . . . . . -- (3,834)
________ ________
Earnings before preferred dividends . . . . 3,464 3,375
Preferred dividends . . . . . . . . . . . . -- (1,468)
________ ________
Net earnings available for common stock . . $ 3,464 $ 1,907
======== ========
Earnings (loss) per common share:
Continuing operations . . . . . . . . . . $ .32 $ .70
Discontinued operation. . . . . . . . . . -- (.47)
________ ________
Net earnings. . . . . . . . . . . . . . $ .32 $ .23
======== ========
Weighted average shares outstanding . . . . 10,667,038 8,256,432
========== =========
See accompanying notes to the consolidated financial statements.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, June 30,
______________________
1994 1993 1994
__________ __________ __________
(thousands of dollars)
Property, plant and equipment:
Plant in service . . . . . . $ 824,089 $ 362,700 $ 813,055
Construction work in
progress . . . . . . . . . 26,509 10,057 21,991
_________ _________ _________
850,598 372,757 835,046
Less accumulated deprecia-
tion and amortization. . . (286,062) (141,546) (279,120)
_________ _________ _________
564,536 231,211 555,926
Additional purchase cost
assigned to utility
plant, net . . . . . . . . 166,066 92,645 167,374
_________ _________ _________
Net property, plant and
equipment. . . . . . . . . 730,602 323,856 723,300
_________ _________ _________
Current assets:
Cash and cash equivalents. . 1,926 9,719 5,881
Accounts receivable,
billed and unbilled. . . . 35,149 19,889 48,273
Inventories, principally
at average cost. . . . . . 40,885 4,932 23,612
Prepayments and other. . . . 3,126 5,900 1,621
_________ _________ _________
Total current assets . . . 81,086 40,440 79,387
_________ _________ _________
Deferred charges . . . . . . . 75,571 14,767 74,367
Real estate. . . . . . . . . . 12,188 11,395 11,983
Other. . . . . . . . . . . . . 1,800 8,589 1,913
_________ _________ _________
Total. . . . . . . . . . . . $ 901,247 $ 399,047 $ 890,950
========= ========= =========
See accompanying notes to the consolidated financial statements.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
STOCKHOLDERS' EQUITY AND LIABILITIES
September 30, June 30,
________________
1994 1993 1994
________ ________ ________
(thousands of dollars)
Common stockholders' equity:
Common stock, $1 par value;
authorized 50,000,000
shares; issued 11,501,794
shares . . . . . . . . . . . . . $ 11,502 $ 5,304 $ 11,497
Premium on capital stock . . . . . 198,303 144,925 198,272
Less treasury stock, at cost . . . (794) (794) (794)
Retained earnings (deficit). . . . (6,168) 492 --
________ ________ ________
Total common stockholders'
equity . . . . . . . . . . . . . 202,843 149,927 208,975
________ ________ ________
Long-term debt . . . . . . . . . . . 478,922 89,122 479,048
________ ________ ________
Current liabilities:
Long-term debt due within
one year . . . . . . . . . . . . 922 20,547 889
Notes payable. . . . . . . . . . . 41,400 70,400 --
Accounts payable . . . . . . . . . 40,415 11,358 44,631
Federal, state and local taxes . . 4,781 9,687 8,706
Accrued interest . . . . . . . . . 6,432 3,667 15,579
Customer deposits. . . . . . . . . 13,311 3,886 13,029
Deferred gas purchase costs
due to customers . . . . . . . . 2,330 -- 8,509
Other. . . . . . . . . . . . . . . 10,766 8,854 12,435
________ ________ ________
Total current liabilities. . . . 120,357 128,399 103,778
________ ________ ________
Deferred credits and other
liabilities. . . . . . . . . . . . 69,445 10,384 69,437
Accumulated deferred income taxes. . 29,680 21,215 29,712
Commitments and contingencies. . . . -- -- --
________ ________ ________
Total. . . . . . . . . . . . . . . $901,247 $399,047 $890,950
======== ======== ========
See accompanying notes to the consolidated financial statements.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF COMMON STOCKHOLDERS' EQUITY
Common Premium
Stock on Treasury Retained
$1 Par Capital Stock, Earnings
Value Stock at Cost (Deficit) Total
______ _______ ________ _________ _______
(thousands of dollars)
Balance
July 1, 1994. . $11,497 $198,272 $(794) $ -- $208,975
Net earnings
(loss). . . . -- -- -- (6,168) (6,168)
Exercise of
stock
options . . . 5 31 -- -- 36
_______ ________ _____ _______ ________
Balance
September 30,
1994. . . . . . $11,502 $198,303 $(794) $(6,168) $202,843
======= ======== ===== ======= ========
See accompanying notes to the consolidated financial statements.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended
September 30,
__________________
1994 1993
________ ________
(thousands of dollars)
Net cash flow used in operating activities. . $(28,344) $ (4,486)
________ ________
Cash flow from investing activities:
Additions to property, plant and
equipment . . . . . . . . . . . . . . . . (14,289) (4,613)
Acquisition of operations, net of
cash received . . . . . . . . . . . . . . (1,072) (32,719)
Leasehold improvements. . . . . . . . . . . (267) (444)
Other, net. . . . . . . . . . . . . . . . . (1,207) (2,360)
________ ________
Net cash flows used in investing
activities. . . . . . . . . . . . . . . (16,835) (40,136)
Cash flow from financing activities:
Net borrowings under revolving
credit facility . . . . . . . . . . . . . 41,400 42,200
Repayment of debt . . . . . . . . . . . . . (212) --
Other, net. . . . . . . . . . . . . . . . . 36 (37)
________ ________
Net cash flows from financing
activities. . . . . . . . . . . . . . . 41,224 42,163
________ ________
Decrease in cash and cash equivalents . . . . (3,955) (2,459)
Cash and cash equivalents at beginning of
period. . . . . . . . . . . . . . . . . . . 5,881 12,178
________ ________
Cash and cash equivalents at end of period. . $ 1,926 $ 9,719
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest. . . . . . . . . . . . . . . . $ 18,498 $ 2,852
======== ========
Income taxes. . . . . . . . . . . . . . $ 4 $ 3,026
======== ========
See accompanying notes to the consolidated financial statements.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
September 30,
_______________________
1994 1993
_________ __________
(thousands of dollars)
Net cash flow from operating activities. . $ 75,246 $ 8,667
_________ _________
Cash flow from investing activities:
Additions to property, plant and
equipment. . . . . . . . . . . . . . . (49,917) (14,414)
Acquisition of operations, net of
cash received. . . . . . . . . . . . . (408,930) (33,500)
Leasehold improvements . . . . . . . . . (1,325) (2,414)
Proceeds from sale of discontinued
operation. . . . . . . . . . . . . . . 220 16,273
Collection of note receivable. . . . . . 6,000 --
Other, net . . . . . . . . . . . . . . . 2,783 (367)
_________ _________
Net cash flows used in investing
activities . . . . . . . . . . . . . (451,169) (34,422)
_________ _________
Cash flow from financing activities:
Net borrowings (payments) under
revolving credit facility. . . . . . . (29,000) 61,800
Repayment of debt. . . . . . . . . . . . (107,741) (2,183)
Issuance of debt . . . . . . . . . . . . 475,000 1,038
Premium on early extinguishment of debt. (13,715) --
Debt issuance costs. . . . . . . . . . . (5,439) --
Proceeds from rights offering, net . . . 49,351 --
Exercise of common stock options . . . . 157 191
Redemption of preferred stock. . . . . . -- (25,376)
Payment of preferred dividends . . . . . -- (1,468)
Credit facility renewal fee. . . . . . . (1,050) --
Other, net . . . . . . . . . . . . . . . 567 (773)
________ _________
Net cash flows from financing
activities . . . . . . . . . . . . . 368,130 33,229
________ _________
Increase (decrease) in cash and cash
equivalents. . . . . . . . . . . . . . . (7,793) 7,474
Cash and cash equivalents at beginning
of period. . . . . . . . . . . . . . . . 9,719 2,245
________ _________
Cash and cash equivalents at end of
period . . . . . . . . . . . . . . . . . $ 1,926 $ 9,719
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . $ 27,647 $ 12,324
======== =========
Income taxes . . . . . . . . . . . . $ 2,798 $ 7,544
======== =========
See accompanying notes to the consolidated financial statements.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
The interim financial statements are unaudited but, in the opinion
of management, reflect all adjustments necessary for a fair
presentation of the results of operations for such periods.
Because of the seasonal nature of the Company's operations, the
results of operations for any interim period are not necessarily
indicative of results for the full year. Also, as described below,
the Company acquired Missouri Gas Energy on January 31, 1994.
Accordingly, the income from operations of Missouri Gas Energy are
consolidated with the Company subsequent to that date. Thus the
results of operations for the twelve-month period ended
September 30, 1994 are not indicative of results that would
necessarily be achieved for a full year since the majority of the
Company's operating margin is earned during the winter heating
season.
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in Southern Union
Company's ("Southern Union" or the "Company") Annual Report on Form
10-K for the period ended June 30, 1994. Certain prior period
amounts have been reclassified to conform with the current period
presentation.
CHANGE IN FISCAL YEAR
On May 25, 1994, Southern Union's Board of Directors approved a
change in the Company's fiscal year-end from December 31 to June 30
effective with the period ended June 30, 1994. The new fiscal year
more closely conforms the Company's reporting of its financial
condition and results of operations to its seasonal business cycle.
ACQUISITIONS
Missouri Gas Energy
On January 31, 1994, the Company consummated the acquisition of
Missouri Gas Energy (the "Missouri Acquisition") from Western
Resources, Inc. ("Western Resources") for $400,300,000 in cash.
The final determination of the purchase price and all prorations
and adjustments between the Company and Western Resources has not
been resolved, but the Company expects to finalize such within one
year of the date the acquisition was consummated. See
"Contingencies." The Missouri Acquisition was financed with
proceeds from the sale of $475,000,000 of 7.60% Senior Notes due
2024 (the "Senior Debt Securities") completed on January 31, 1994
and net proceeds from the sale of $50,000,000 of common stock in a
subscription rights offering (the "Rights Offering") completed on
December 31, 1993. See "Capitalization." The assets of Missouri
Gas Energy were included in the Company's consolidated balance
sheet at January 31, 1994 and income from operations of Missouri
Gas Energy have been included in the statement of consolidated
operations since February 1, 1994. Missouri Gas Energy serves
approximately 463,000 customers in 147 communities in central and
western Missouri, including Kansas City, St. Joseph, Joplin and
Monett. The acquisition was accounted for using the purchase
method. The additional purchase cost assigned to utility plant of
approximately $76,500,000 reflects the excess of the purchase price
over the historical book carrying value of net assets acquired.
The additional purchase cost assigned to utility plant is amortized
on a straight-line basis over forty years.
Rio Grande Valley
On September 30, 1993, the Company acquired Rio Grande Valley Gas
Company ("Rio Grande") for $30,500,000. Rio Grande serves approxi-
mately 74,000 customers in the south Texas counties of Willacy,
Cameron and Hidalgo. Rio Grande's service area includes 32 towns
and cities along the Mexico border, including Harlingen, McAllen
and
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Brownsville (the southernmost city in the continental U.S.). The
Company initially funded the purchase with borrowings from its
revolving credit facility which were subsequently repaid with
proceeds from the sale of the Senior Debt Securities completed on
January 31, 1994, and the Rights Offering completed on December 31,
1993. The assets of Rio Grande were included in the consolidated
balance sheet at September 30, 1993 and income from operations of
Rio Grande has been included in the statement of consolidated
operations beginning October 1, 1993. The acquisition was
accounted for using the purchase method. The additional purchase
cost assigned to utility plant of approximately $11,644,000
reflects the excess of the purchase price over the historical book
carrying value of the net assets acquired. The additional purchase
cost assigned to utility plant is amortized on a straight-line
basis over forty years.
PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
The following unaudited pro forma condensed statement of
consolidated operations for the three and twelve months ended
September 30, 1994 and 1993 is presented as though the following
events had been consummated at the beginning of the periods
presented: (i) the Missouri and Rio Grande Acquisitions; (ii) the
sale of the Senior Debt Securities; (iii) the completion of the
Rights Offering; (iv) the refinancing of certain short-term and
long-term debt; and (v) the elimination of preferred stock
dividends resulting from the purchase and redemption of all
outstanding preferred stock. The pro forma financial information
is not necessarily indicative of the results which would have
actually been obtained had the acquisitions of Missouri Gas Energy
and Rio Grande, the Rights Offering, the sale of Senior Debt
Securities or the refinancings been completed as of the assumed
date for the periods presented or which may be obtained in the
future.
The pro forma condensed statement of consolidated operations
includes adjustments that are based on assumptions and estimates
made by the Company's management regarding anticipated efficiencies
resulting from the combined operations, reductions in costs planned
by management, accruals for certain preacquisition contingencies
and the fair market value of certain assets acquired in the
Missouri Acquisition. The actual allocation of the consideration
paid for the Missouri Acquisition may differ from that reflected in
the pro forma condensed statement of consolidated operations after
the completion of the final determination of the purchase price.
Three Months Ended Twelve Months Ended
September 30, September 30,
__________________ ___________________
1994 1993 1994 1993
________ ________ ________ ________
(thousands of dollars, except
per share amounts)
Operating revenues. . . $ 69,114 $ 71,854 $602,223 $562,110
Gas purchase costs. . . 28,825 33,177 356,355 326,686
________ ________ ________ ________
Operating margin. . . 40,289 38,677 245,868 235,424
Operating expenses. . . 41,513 42,726 195,135 185,149
________ ________ ________ ________
Net operating revenues
(loss). . . . . . . . (1,224) (4,049) 50,733 50,275
Interest on long-term
debt. . . . . . . . . (9,368) (9,233) (37,479) (37,013)
Other income (expenses),
net . . . . . . . . . 1,000 1,137 4,526 4,722
________ ________ ________ ________
Earnings (loss) be-
fore income taxes . (9,592) (12,145) 17,780 17,984
Federal and state income
taxes (benefit) . . . (3,258) (4,615) 6,756 6,834
________ ________ ________ ________
Net earnings (loss)
available for common
stock . . . . . . . $ (6,334) $ (7,530) $ 11,024 $ 11,150
======== ======== ======== ========
Net earnings (loss)
per common share. . . $ (.55) $ (.66) $ .96 $ .98
======== ======== ======== ========
Weighted average shares
outstanding
(thousands) . . . . . 11,449 11,421 11,437 11,406
======== ======== ======== ========
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL CONDITION
As a result of the Missouri Acquisition on January 31, 1994,
certain balance sheet amounts have changed significantly. Details
of specific line item classifications on the balance sheet as of
September 30, 1994 are set forth below.
Inventories. Inventories consist principally of gas in underground
storage and materials and supplies. Gas in underground storage of
approximately $33,590,000 at September 30, 1994 consists of
approximately 15,912 MMBtu's of gas attributable to the operations
of Missouri Gas Energy.
Deferred Charges. Deferred charges consist principally of: (i)
unamortized debt issuance costs and premiums on early extinguish-
ment of debt of approximately $24,796,000; (ii) a regulatory asset
of $38,300,000 for the deferral of the actuarially calculated
accumulated postretirement benefit obligation assumed in the
purchase of Missouri Gas Energy; and (iii) a regulatory asset of
approximately $6,560,000 for the deferral of those costs and
expenditures, including depreciation, property taxes and associated
carrying costs, related to a major gas safety program in the
service territories of Missouri Gas Energy. See "Capitalization"
and "Utility Regulations and Rates."
Deferred Credits and Other Liabilities. Deferred credits and other
liabilities consist principally of non-current liabilities for:
(i) customer advances for construction of approximately $9,641,000;
(ii) approximately $38,300,000 for the deferral of the actuarially
calculated accumulated post-retirement benefit obligation,
previously discussed; (iii) employee severance and other costs
associated with an early retirement program for employees of
Missouri Gas Energy of approximately $9,900,000; and (iv) other
Missouri Gas Energy preacquisition contingencies of approximately
$8,300,000.
CAPITALIZATION
First mortgage bonds and other long-term debt outstanding,
including current maturities, were as follows:
September 30, June 30,
1994 1994
_____________ ____________
(thousands of dollars)
First mortgage bonds:
11.5% due 2000 -- collateralized
by utility plant in service . . . $ 1,700 $ 1,700
Other long-term debt:
7.60% Senior Notes due 2024 . . . . 475,000 475,000
Other . . . . . . . . . . . . . . . 3,144 3,237
________ ________
Total debt . . . . . . . . . . . . . . 479,844 479,937
Less current portion . . . . . . . . 922 889
________ ________
Total long-term debt . . . . . . . $478,922 $479,048
======== ========
On January 31, 1994, Southern Union completed the sale of the
Senior Debt Securities. The net proceeds from the sale of the
Senior Debt Securities, together with the net proceeds from the
Rights Offering and working capital from operations, were used to:
(i) fund the Missouri Acquisition; (ii) repay approximately
$59,300,000 of borrowings under the $100,000,000 revolving credit
facility previously used to fund the Rio Grande Acquisition and
repurchase all outstanding preferred stock; (iii) refinance, on
January 31, 1994, the $10,000,000 aggregate principal amount of
9.45% notes due January 31, 2004 and $25,000,000 aggregate
principal amount of 10% notes due January 31, 2012 and the related
premium of approximately $10,400,000 resulting from the early
extinguishment of such notes;
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(iv) refinance, on March 2, 1994, $50,000,000 aggregate principal
amount of 10.5% Sinking Fund Debentures due May 15, 2017 and the
related premium of approximately $3,300,000 resulting from the
early extinguishment of such debentures; and (v) refinance, on
May 16, 1994, $20,000,000 aggregate principal amount of 10-1/8%
notes.
CASH FLOW INFORMATION
Three Months Ended Twelve Months Ended
September 30, 1994 September 30, 1994
__________________ ___________________
(thousands of dollars)
Non-cash assets
(liabilities)
acquired other
than cash:
Working capital. . . . $ -- $ 51,722
Property, plant and
equipment, net . . . 1,072 353,094
Other noncurrent
assets . . . . . . . -- 46,914
Noncurrent
liabilities. . . . . -- (42,800)
________ _________
$ 1,072 $ 408,930
======== =========
Excluded from the statement of consolidated cash flows were the
following effects of non-cash investing and financing activities:
Three Months Ended Twelve Months Ended
September 30, 1994 September 30, 1994
__________________ ___________________
(thousands of dollars)
Other obligations
incurred. . . . . . . . $ 118 $ 2,915
======= =========
STOCK DIVIDEND AND SPLIT
On May 25, 1994, Southern Union's Board of Directors declared a 5%
stock dividend, distributed on June 30, 1994 to stockholders of
record on June 14, 1994. A portion of the 5% stock dividend was
characterized as a distribution of capital due to the level of the
Company's retained earnings available for distribution as of the
declaration date. The 5% stock dividend is consistent with the
Board of Directors' approval in February 1994 of the commencement
of regular stock dividends of approximately 5% annually. In
addition, on February 11, 1994, the Board of Directors declared a
three-for-two stock split distributed in the form of a 50% stock
dividend on March 9, 1994, to stockholders of record on
February 23, 1994. Unless otherwise stated, all per share data
included in the accompanying consolidated financial statements and
in these Notes to Consolidated Financial Statements has been
restated to give effect to the stock dividend and stock split.
ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 112, Employers Accounting for
________________________
Postemployment Benefits, as of January 1, 1994. This statement
_______________________
requires that the cost of benefits, such as disability and health
care continuation coverage provided to former or inactive employees
after employment but before retirement, be accrued if attributable
to an employee's previously rendered service. The Company had
previously recognized such postemployment benefit costs when paid
and was allowed recovery in rates as payments were incurred.
Consequently, the Company records a regulatory asset and related
liability to the extent it intends to file rate applications to
include such costs in rates and such costs are considered
probable of recovery.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UTILITY REGULATION AND RATES
Prior to the Missouri Acquisition, Western Resources was required
pursuant to a 1989 Missouri Public Service Commission ("MPSC")
order to undertake a major gas safety program in the service
territories of Missouri Gas Energy. Such activities included
replacement of company- and customer-owned gas service and yard
lines, the movement and resetting of meters, the replacement of
cast iron mains and the replacement and cathodic protection of bare
steel mains ("Missouri Safety Program"). In recognition of the
significant capital expenditures associated with this safety
program, the MPSC issued Western Resources certain Accounting
Authority Orders ("AAO") providing for the deferral, and subsequent
recovery through rates, of depreciation expenses, property
taxes and associated carrying costs related to the Missouri Safety
Program.
Missouri Gas Energy is required to continue the Missouri Safety
Program and has deferred depreciation expense, property taxes and
carrying costs associated with Missouri Gas Energy's investment in
the Missouri Safety Program as approved by the MPSC. The Company
has deferred approximately $628,000 related to depreciation,
property taxes and associated carrying costs on its investment in
this program for the three-month period ended September 30, 1994.
The continuation of the Missouri Safety Program will result in
significant levels of future capital expenditures. The Company
estimates incurring capital expenditures of approximately
$22,000,000 in fiscal 1995 related to this program.
CONTINGENCIES
Southern Union is aware of the possibility that it may become a
defendant in an action brought by the United States Environmental
Protection Agency ("EPA") under 42 U.S.C. Section 9607(a) for
reimbursement of costs associated with removing hazardous
substances from the site of a former coal gasification plant (the
"Pine Street Canal Site") in Burlington, Vermont. This knowledge
arises out of the existence of a prior action, United States
_____________
v. Green Mountain Power Corp., et al, Civil No. 88-307 (D. Vt.), in
____________________________
which Southern Union became involved as a third-party defendant in
January 1989. Green Mountain Power was an action under 42 U.S.C.
Section 9607(a) by the federal government to recover clean-up costs
associated with the "Maltex Pond", which is part of the Pine Street
Canal Site. Two defendants in Green Mountain Power, Vermont Gas
Systems and Green Mountain Power Corp., claimed that Southern Union
is the corporate successor to People's Light and Power Corporation,
an upstream corporate parent of Green Mountain Power Corp. during
the years 1928-1931. Green Mountain Power was settled without
admission or determination of liability with respect to Southern
Union by order dated December 26, 1990. The EPA has since
conducted studies of the clean-up costs for the remainder of the
Pine Street Canal Site, but the ultimate costs are unknown at this
time. On November 30, 1992, Southern Union was named as a
potentially responsible party in a special notice letter from the
EPA. On August 16, 1993, Southern Union's participation in
settlement discussions on technical and allocation issues with the
EPA was requested by Green Mountain Power Corp., Vermont Gas
Systems, Inc. and New England Electric System (the "Gas Plant
PRPs"). By letter dated September 20, 1993, the Company informed
the Gas Plant PRPs of its reasons for its belief that it has no
liability for the site, including (1) that it is not a corporate
successor to any entity that owned or was an operator of the Pine
Street Canal Site during the period the coal gasification plant was
in operation, (2) that any claims against Peoples Light and Power
Corporation were discharged in that company's 1936 Plan of
___________
Reorganization, and (3) that Southern Union merged with a successor
to People's Light and Power Company, Inc., a separate company
_______
incorporated following the bankruptcy of Peoples Light and Power
Corporation. Should Southern Union be made party to any action
seeking recovery of remaining clean-up costs, the Company intends
to assert the foregoing defenses and to otherwise vigorously defend
against such an action. The Company has made demands of the
appropriate insurers that they assume the
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
defense of and liability for any such claim that may be asserted.
The Company does not believe the outcome of this matter will have
a material adverse effect on its financial position or results of
operations.
Southern Union and Western Resources entered into an Environmental
Liability Agreement (the "Environmental Liability Agreement") at
the closing of the Missouri Acquisition. Subject to the accuracy
of certain representations made by Western Resources in the
Missouri Asset Purchase Agreement, the Environmental Liability
Agreement provides for a tiered approach to the allocation of
substantially all liabilities under environmental laws that may
exist or arise with respect to Missouri Gas Energy. The
Environmental Liability Agreement contemplates Southern Union first
seeking reimbursement from other potentially responsible parties,
or recovery of such costs under insurance or through rates charged
to customers. To the extent certain environmental liabilities are
discovered by Southern Union prior to January 31, 1996, and are not
so reimbursed or recovered, Southern Union will be responsible for
the first $3,000,000, if any, of out-of-pocket costs and
expenses incurred to respond to and remediate any such
environmental claim. Thereafter, Western Resources would share
one-half of the next $15,000,000 of any such costs and expenses,
and Southern Union would be solely liable for any such costs and
expenses in excess of $18,000,000. Missouri Gas Energy owns or is
otherwise associated with a number of sites where manufactured gas
plants were previously operated. These plants were commonly used
to supply gas service in the late 19th and early 20th centuries, in
certain cases by corporate predecessors to Western Resources. By-
products and residues from manufactured gas could be located at
these sites and at some time in the future may require remediation
by the EPA or delegated state regulatory authority. By virtue of
notice under the Missouri Asset Purchase Agreement and its
preliminary, non-invasive review, the Company became aware prior to
closing of 11 such sites in the service territory of Missouri Gas
Energy. Based on information reviewed thus far, it appears that
neither Western Resources nor any predecessor in interest ever
owned or operated at least three of those sites. Subsequent to the
closing of the Missouri Acquisition, as a result of an
environmental audit, the Company has discovered the existence of
possibly six additional sites in the service territory of Missouri
Gas Energy. Southern Union has so informed Western Resources. The
Company does not know if any of these additional sites were ever
owned or operated by Western Resources or any of its predecessors
in interest. Western Resources has informed the Company that it
was notified in 1991 by the EPA that it was evaluating one of the
sites (in St. Joseph, Missouri) for any potential threat to human
health and the environment. Western Resources has also advised the
Company on September 15, 1994 that as of that date the EPA had not
notified it that any further action may be required. Evaluation of
the remainder of the sites by appropriate federal and state
regulatory authorities may occur in the future. At the present
time and based upon information available to management, the
Company be
UTILITY REGULATION AND RATES
Prior to the Missouri Acquisition, Western Resources was required
pursuant to a 1989 Missouri Public Service Commission ("MPSC")
order to undertake a major gas safety program in the service
territories of Missouri Gas Energy. Such activities included
replacement of company- and customer-owned gas service and yard
lines, the movement and resetting of meters, the replacement of
cast iron mains and the replacement and cathodic protection of bare
steel mains ("Missouri Safety Program"). In recognition of the
d agreements between the Company and the defendants are
of no force and effect. The first matter involves a letter
agreement between the Company and certain of the defendants
pursuant to which the defendants claim they are entitled to certain
options for business from the Company. The second matter involves
an agreement under which the Company purchases gas from certain of
the defendants. In the second matter, the Company also is seeking
damages for excessive charges which Missouri Gas Energy believes it
has incurred in the past. On September 1 the defendants filed
their answer and counterclaims in which they seek, among other
things, damages for alleged breach. The Company intends to
respond with various affirmative defenses and counterclaims of its
own. The Company has not yet quantified either its damages or the
damages sought by defendants. Southern Union Company v. Western
_________________________________
Resources, Inc., The Bishop Group, Ltd., et al., Civil Action No.
_______________________________________________
94-0509-CV-W-1, involves a claim by the Company that it is
entitled to be indemnified by Western Resources for any and all
costs and liabilities the Company may incur in connection with
certain gas transportation agreements
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
purportedly assigned to the Company at the closing of the Missouri
Acquisition. In the event Western Resources is not obligated to
provide the indemnification, the Company has also claimed that
Western Resources nevertheless is liable for any and all damages
suffered by the Company arising out of such agreements due to
Western Resources' fraud and misrepresentation regarding such
agreements prior to their assignment. The Company also has sued
the counterparties to the transportation agreements for a
declaratory judgment that the agreements themselves are of no force
and effect. Western Resources filed its answer, counterclaims and
cross-claims on August 1, 1994. Western Resources denied any
responsibility to the Company arising out of the transportation
agreements. Western Resources also has filed a cross-claim against
the counterparties to the agreements for a declaratory judgment
that Western Resources has fulfilled any responsibilities it ever
had to the counterparties under such agreements.
Western Resources also filed two counterclaims against Southern
Union seeking (i) the payment of certain amounts Western Resources
claims it is owed under the purchase price "true-up" procedures of
Article III of the Missouri Asset Purchase Agreement totaling
$7,100,000 and (ii) a declaratory judgment that certain other
claims made by the Company against Western Resources arising out of
the purchase price "true-up" procedures of Article III of the
Missouri Asset Purchase Agreement are not subject to an arbitration
clause contained in that Agreement. On August 25, 1994, Southern
Union replied to the counterclaims of Western Resources with
various affirmative defenses and raised counterclaims of its own
against Western Resources seeking i) enforcement of the arbitration
provision in the Missouri Asset Purchase Agreement, ii) damages for
breach by Western Resources of its obligation to make certain
payments under that agreement and iii) breach by Western Resources
of various representations and warranties. The dispute between
Southern Union and Western Resources arising out of the purchase
price "true-up" process for the Missouri Acquisition and related
claims essentially is that the Company has demanded a refund of
approximately $12,000,000 of the approximately $400,000,000
Southern Union paid to Western Resources at the closing of the
Missouri Acquisition, while Western Resources is refusing to
arbitrate those issues and demanding an additional payment of
approximately $7,100,000.
On August 10, 1994, the counterparties filed their answer, along
with counterclaims against Southern Union and cross-claims against
Western Resources. The counterparties allege, among other things,
various breaches by and conspiracy to breach between Southern Union
and Western Resources. On September 8, 1994, the Company
replied to the counterclaims of the counterparties with a number of
affirmative defenses. The Company also counterclaimed and cross-
claimed against the counterparties and Western Resources
respectively for tortious interference with business expectancy and
conspiracy. The Company has not yet quantified either its damages
or the damages sought by Western Resources other than in connection
with the purchase price dispute discussed previously. The counter-
parties have alleged a preliminary computation of damages in the
range of $196,000,000 to $270,000,000 against Southern Union and
Western Resources. The Company believes this allegation to be
meritless. The Company intends to vigorously pursue all claims and
to defend against all counterclaims in both actions. The Company
does not believe the outcome of this matter will have a material
adverse effect on its financial position or results of operations.
Southern Union and its subsidiaries are parties to other legal
proceedings that its management considers to be the normal kinds of
actions to which an enterprise of its size and nature might be
subject, and not to be material to the Company's overall business
or financial condition.
Pursuant to the terms of the Missouri Asset Purchase Agreement, the
Company agreed to assume the Missouri portion of certain obliga-
tions of Western Resources related to a 1990 settlement of a
Wyoming Tight Sands anti-trust litigation. The settlement provided
for the refund of $126,000,000 over a 20-year period for certain
previous overcharges by certain gas suppliers. Approximately
$63,400,000 related to customers of Missouri Gas Energy. In 1991,
the MPSC approved a plan authorizing the refund of a lump sum
payment to Missouri Gas Energy's
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
customers with the remaining balance to be refunded over a ten-
year period commencing in the year 2002. To secure the refund of
the settlement proceeds, the MPSC authorized the establishment of
an independently administered trust to collect cash receipts under
the Tight Sands settlement and repay credit-facility borrowings
used for the lump sum payment. The Company is committed, under the
Tight Sands settlement agreement and the Missouri Asset Purchase
Agreement, to take a minimum of 55,300 MMBtu's per day from certain
gas suppliers until maturity of the trust's credit facility on
December 31, 2001. In addition, in the event the trust does
not receive cash payments from the gas suppliers as provided by the
Tight Sands settlement agreement, the Company is committed to pay
its applicable portion of the amount owed the lender of the credit-
facility borrowings. The Company's unpaid applicable portion of
the amount the trust owes the lender at September 30, 1994 was
approximately $9,200,000.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern Union Company is engaged in various activities in the
distribution of natural gas to residential, commercial, industrial,
agricultural and other customers in communities throughout Texas,
western Missouri and the Oklahoma panhandle. The Company's
principal line of business is the distribution of natural gas as a
public utility through Southern Union Gas Company and Missouri Gas
Energy, each of which is a division of the Company. In addition,
the Company operates interstate and intrastate natural gas pipeline
systems, markets natural gas to end-users, holds investments in
real estate, and markets and sells natural gas for natural gas
vehicles. Several of these business activities are subject to
regulation by federal, state or local authorities where the
Company operates. Thus, the Company's financial condition and
results of operations have been and will continue to be dependent
upon the receipt of adequate and timely adjustments in rates. In
addition, the Company's business is affected by seasonal weather
impacts, competitive factors within the energy industry and
economic development and residential growth in its service areas.
On January 31, 1994, Southern Union completed the acquisition of
Missouri Gas Energy (the "Missouri Acquisition"). As of
September 30, 1994, Missouri Gas Energy served approximately
463,000 customers in 147 communities in central and western
Missouri, including Kansas City, St. Joseph, Joplin and Monett. In
addition, on September 30, 1993, the Company completed the
acquisition of Rio Grande Valley Gas Company ("Rio Grande")
which serves approximately 74,000 customers in south Texas. These
acquisitions were accounted for as purchases and accordingly, the
operating results of the acquired companies have been included in
the consolidated operating results since the respective dates of
acquisition. See "Acquisitions" in the Notes to Consolidated
Financial Statements for the quarter ended September 30, 1994,
included herein. For these reasons, the results of operations of
the Company for the periods subsequent to those acquisitions are
not comparable to those periods prior to the acquisitions nor are
the 1994 results of operations comparable with previous periods.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1994 and 1993
The Company recorded a net loss attributable to common stock of
$6,168,000 for the three-month period ended September 30, 1994
compared to a net loss of $1,254,000 for the three-month period
ended September 30, 1993. Net loss per common share, based on
weighted average shares outstanding during the period, was $.54 in
1994 compared with a net loss per common share of $.15 in 1993.
Due to the seasonal nature of the gas utility business, the three-
month period ending September 30 is typically a loss period.
The increased net loss is primarily attributable to the seasonal
revenue stream of the Missouri operations. Missouri Gas Energy's
rate structure provides for the collection of a greater percentage
of its margin during the winter heating season months when compared
to Southern Union's operations in Texas, resulting in greater
losses from the Missouri operations during the summer period.
In addition, because of the increase in the Company's outstanding
debt, interest expense increased to $9,368,000 for the three months
ended September 30, 1994 compared to $2,888,000 for the same period
in 1993. The increase in outstanding debt is the result of the
Missouri Acquisition, which was financed primarily through the
sale of $475,000,000 of 7.60% Senior Debt Securities also in
January 1994. The proceeds from the issuance of the Senior Debt
Securities, along with a $50,000,000 Rights Offering and working
capital from operations, were also used to retire approximately
$105,000,000 of long-term debt.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating revenues were $69,114,000 for the three-month period
ended September 30, 1994, an increase of 113%, compared with
operating revenues of $32,416,000 in 1993. Gas purchase costs for
the three-month period ended September 30, 1994 were $28,825,000,
an increase of 101%, compared with $14,336,000 in 1993. The
Company's operating revenues are affected by the level of sales
volumes and by the pass-through of increases or decreases in the
Company's gas purchase costs through its purchased gas adjustment
clauses. Both operating revenues and gas purchase costs increased
in the three-month period ended September 30, 1994 as a result of
a 86% increase in gas sales volumes from 6,259 MMcf in 1993 to
11,645 MMcf in 1994 and an increase in the average cost of gas to
$3.51 per Mcf in 1994 from $3.00 per Mcf in 1993. The increase in
volumes is due principally to a 134% increase in the average
customer base to approximately 939,000 customers in 1994 compared
with approximately 402,000 in 1993 resulting from the Missouri
Acquisition and acquisition of Rio Grande (the "Rio Grande
Acquisition"). The increase in the average cost per Mcf of gas is
consistent with increases in average spot market gas prices and the
average gas price incurred by the Missouri operations. The
Missouri and Rio Grande Acquisitions contributed approximately
$33,173,000 and $5,246,000, respectively, to the overall increase
in operating revenues and approximately $13,454,000 and $2,309,000,
respectively, in gas purchase costs.
Operating margin for the three-month period ended September 30,
1994 was $40,289,000 compared to $18,080,000 in 1993. The increase
in operating margin also resulted from the Missouri and Rio Grande
Acquisitions which contributed approximately $22,656,000 to the
overall increase. The Company's operating margin for the three-
month period ended September 30, 1994 was also favorably impacted
by a rate increase in El Paso, Texas of $463,000 annualized,
effective November 1, 1993.
Operating expenses, which include operating, maintenance and
general expenses, taxes other than on income, and depreciation and
amortization, were $41,245,000 for the three-month period ended
September 30, 1994, an increase of 137%, compared with $17,376,000
in 1993. The increase was primarily attributable to the additional
operating expenses associated with the Missouri and Rio Grande
Acquisitions of approximately $21,061,000 and $2,385,000,
respectively.
Interest expense on long-term debt was $9,368,000 for the three-
month period ended September 30, 1994, an increase of 224%,
compared to $2,888,000 in 1993. The increase in interest expense
is due to the net increase in total long-term debt which included
the sale of the $475,000,000 of Senior Debt Securities, completed
on January 31, 1994 net of the retirement of $105,000,000 in long-
term debt. The net proceeds from the sale of the Senior Debt
Securities, together with the net proceeds from $50,000,000 Rights
Offering and working capital from operations, was used to fund the
Missouri and Rio Grande Acquisitions, and refinance certain short-
term and long-term debt. See "Capitalization" in the Notes to the
Consolidated Financial Statements for the three-month period ended
September 30, 1994.
Other income for the three-month period ended September 30, 1994
was $1,535,000 compared to $811,000 in 1993. Other income for the
three-month period ended September 30, 1994 consists of: rental
income from Lavaca Realty Company ("Lavaca Realty"), the Company's
real estate subsidiary, of approximately $661,000; approximately
$360,000 related to the deferral of interest expense associated
with the Missouri Gas Energy Safety Program; investment interest
and interest on notes receivable of approximately $112,000; and
approximately $94,000 from gas appliance merchandising. Other
income for 1993 primarily consisted of a non-recurring
accounting adjustment of approximately $1,168,000 to reverse a tax
reserve upon the completion of prior federal income tax audits and
$233,000 of investment interest and interest on notes receivable.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Weighted average shares of common stock outstanding were 11,449,193
for the three-month period ended September 30, 1994 compared to
8,271,032 in 1993. The increase is a result of the Rights Offering
completed on December 31, 1993 to existing stockholders to
subscribe for and purchase 2,000,000 pre-split and pre-dividend
shares of the Company's common stock, par value $1.00 per share, at
a pre-split and pre-dividend price of $25.00 per share for net
proceeds of $49,351,000. The proceeds from the Rights Offering,
together with the proceeds from the sale of the Senior Debt
Securities, were used to fund the Missouri and Rio Grande
Acquisitions, and to retire or refinance certain outstanding debt.
Twelve Months Ended September 30, 1994 and 1993
The Company recorded net earnings available for common stock of
$3,464,000 for the twelve-month period ended September 30, 1994
compared with net earnings of $1,907,000 in 1993. Net earnings per
common share, based on weighted average shares outstanding during
the period, were $.32 in 1994 compared with net earnings per common
share of $.23 in 1993.
Earnings from continuing operations, net of preferred dividends,
for the twelve-month period ended September 30, 1994 were
$3,464,000 compared with net earnings from continuing operations of
$5,741,000 in 1993. Earnings from continuing operations per common
share for the twelve-month period ended September 30, 1994 were
$.32 compared with $.70 in 1993.
Operating revenues were $411,213,000 for the twelve-month period
ended September 30, 1994, an increase of 104%, compared with
operating revenues of $201,408,000 in 1993. Gas purchase costs for
the twelve-month period ended September 30, 1994 were $225,614,000,
an increase of 109%, compared with gas purchase costs of
$107,943,000 in 1993. The increase in both operating revenues and
gas purchase costs between periods was primarily the result of a
119% increase in gas sales volume to 99,367 MMcf in 1994 from
45,457 MMcf in 1993 and an increase in the average cost of gas to
$2.93 per Mcf in 1994 from $2.59 per Mcf in 1993. The increase in
volume is primarily attibutable to growth in the average customer
base resulting from the Missouri and Rio Grande Acquisitions while
the increase in the cost of gas is due to increases in gas prices,
both previously discussed above. The Missouri and Rio Grande
Acquisitions contributed operating revenues of approximately
$176,675,000 and $29,097,000, respectively, while incremental gas
purchase costs for these operating divisions were approximately
$100,031,000 and $15,475,000, respectively.
Operating margin for the twelve-month period ended September 30,
1994 was $185,599,000 compared to $93,465,000 in 1993. The
increase in operating margin resulted primarily from the Missouri
and Rio Grande Acquisitions which contributed approximately
$90,266,000 to the overall increase. The Company's operating
margin for the twelve-month period ended September 30, 1994 was
also favorably impacted by several rate increases effected during
the past year including a $777,000 annualized increase in the
Company's South Texas Region effective February 10, 1993; a
$1,948,000 annualized increase in Austin effective July 1, 1993;
and a $463,000 annualized increase in El Paso as previously
discussed. In addition, on October 5, 1993, the MPSC issued a rate
order increasing Missouri Gas Energy's natural gas rates by
$9,750,000 annually. The MPSC rate order became effective on
October 15, 1993. Due to the timing of the closing of the Missouri
Acquisition on January 31, 1994, the Company's results of
operations for the twelve months ended September 30, 1994 do not
include the full effect of this rate increase.
Operating expenses, which include operating, maintenance and
general expenses, taxes other than on income and depreciation and
amortization, were $155,226,000 for the twelve-month period ended
September 30, 1994, an
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
increase of 111%, compared with operating expenses of $73,670,00 in
1993. The increase in these expenses is principally due to the
operating expenses associated with the Missouri and Rio Grande
Acquisitions of approximately $69,318,000 and $9,920,000,
respectively.
Total other expenses were $24,226,000 for the twelve-month period
ended September 30, 1994, an increase of 167%, compared with other
expenses of $9,079,000 in 1993. The increase is due principally to
the increase in interest expense partially offset by an increase in
other income. Interest expense on long-term debt was $30,048,000
for the twelve-month period ended September 30, 1994, an increase
of approximately 158%, compared with interest expense of
$11,633,000 in 1993 which is due to the net increase in long-term
debt, previously discussed. Other net income for the twelve-month
period ended September 30, 1994 included: rental income from
Lavaca Realty of approximately $2,324,000; a non-recurring
accounting adjustment of approximately $1,177,000 related to the
amendment of prior year federal income tax returns and the reversal
of a tax reserve upon the completion of prior period federal income
tax audits; investment interest and interest on notes receivable of
approximately $825,000; approximately $667,000 related to the
deferral of interest expense associated with the Missouri Gas
Energy Safety Program; a pre-tax gain of approximately $494,000 on
the sale of undeveloped real estate; and approximately $347,000
from gas appliance merchandising. Other net income for the twelve-
month period ended September 30, 1993 included: a reversal of
approximately $2,200,000 of contingency reserves recorded at the
time an acquiring company completed a cash merger into Southern
Union in February 1990; a non-recurring accounting adjustment of
approximately $1,168,000 to reverse a tax reserve upon the
completion of prior period federal income tax audits; and a
$950,000 gain resulting from a litigation settlement.
The overall increase in net earnings for the twelve-month period
ended September 30, 1994 also reflects the Company's recognition of
a net loss from a discontinued operation of $3,834,000, net of tax,
recorded in the twelve-month period ended September 30, 1993. In
addition, net earnings in 1994 were favorably impacted by the
elimination of $1,468,000 in preferred dividends as the remaining
shares of cumulative preferred stock were retired in June 1993.
Because of the acquisition of Missouri Gas Energy on January 31,
1994, the income from operations of Missouri Gas Energy are
consolidated with the Company subsequent to that date. Thus, the
results of operations for the twelve-month period ended
September 30, 1994 are not indicative of results that would
necessarily be achieved for a full year since the majority of the
Company's operating margin is earned during the winter heating
season.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain information regarding the
Company's gas utility operations for the three- and twelve-month
periods ended September 30, 1994 and 1993:
Three Months Twelve Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
________ ________ ________ ________
Average number of
gas sales custo-
mers served:
Residential. . . 850,910 373,240 723,114 371,362
Commercial . . . 84,453 25,190 67,921 26,008
Industrial and
irrigation . . 646 769 797 759
Public authori-
ties and
other. . . . . 2,716 2,216 2,647 2,217
Pipeline and
marketing. . . 545 212 356 179
________ ________ ________ ________
Total
average
customers
served . . 939,270 401,627 794,835 400,525
======== ======== ======== ========
Gas sales in millions
of cubic feet (MMcf)
Residential. . . 5,060 2,057 48,424 21,534
Commercial . . . 3,189 1,416 21,969 9,272
Industrial and
irrigation . . 652 773 2,121 2,735
Public authori-
ties and
other. . . . . 170 216 2,913 2,984
Pipeline and
marketing. . . 2,043 1,795 7,730 9,574
________ ________ ________ ________
Gas sales
billed . . . . 11,114 6,257 83,157 46,099
Net change in
unbilled gas
sales. . . . . 531 2 (5,548) (642)
________ ________ ________ ________
Total gas
sales. . . 11,645 6,259 77,609 45,457
======== ======== ======== ========
Gas sales revenues
(thousands of
dollars):
Residential. . . $ 38,030 $ 15,181 $268,855 $111,341
Commercial . . . 14,278 6,310 102,244 39,009
Industrial and
irrigation . . 2,117 2,585 8,838 9,444
Public authori-
ties and
other. . . . . 774 815 10,902 10,541
Pipeline and
marketing. . . 4,681 4,139 18,301 23,099
________ ________ ________ ________
Gas revenues
billed . . 59,880 29,030 409,140 193,434
Net change in
unbilled gas
sales
revenues . . . 2,291 136 (28,427) (1,246)
________ ________ ________ ________
Total gas
sales
revenues . $ 62,171 $ 29,166 $380,713 $192,188
======== ======== ======== ========
Gas sales margin
(thousands of
dollars) . . . . . $ 33,346 $ 14,830 $155,099 $ 84,245
======== ======== ======== ========
Gas sales revenue per
thousand cubic feet
(Mcf) billed:
Residential. . . $ 7.516 $ 7.380 $ 5.552 $ 5.170
Commercial . . . 4.478 4.456 4.654 4,207
Industrial and
irrigation . . 3.245 3.344 4.167 3.453
Public authori-
ties and
other. . . . . 4.555 3.773 3.743 3.533
Pipeline and
marketing. . . 2.291 2.306 2.368 2.413
Weather effect:
Degree days. . . . 31 0 1,821 1,907
Percent of normal,
based on 30-year
average. . . . . 110% 100% 90% 88%
Gas transported in
millions of cubic
feet (MMcf). . . . 14,215 6,148 44,201 25,210
Gas transportation
revenues
(thousands of
dollars) . . . . . $ 3,122 $ 1,468 $ 11,615 $ 6,204
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's gas utility operations are seasonal in nature with a
significant percentage of the annual revenues and earnings
occurring in the traditional heating-load months. This seasonality
results in a high level of cash flow needs during the peak winter
heating-load months, resulting from the required payments to
natural gas suppliers in advance of the receipt of cash payments
from the Company's customers. The Company has historically used
its revolving loan and credit facilities and internally generated
funds to provide funding for its seasonal working capital,
continuing construction and maintenance programs and operational
requirements.
The principal sources of funds during the three-month period ended
September 30, 1994 included approximately $41,400,000 from the
Company's available credit facility which provided funds for
additions to property, plant and equipment of approximately
$14,300,000 and other seasonal working capital needs of the
Company.
The effective rate of interest on debt outstanding for the three-
month period ended September 30, 1993 was approximately 10.25%.
The effective rate under the current debt structure is
approximately 7.74% (including interest and the amortization of
debt issuance costs and redemption premiums on refinanced debt).
On September 30, 1993, Southern Union entered into a new revolving
credit facility with a three year term (the "Revolving Credit
Facility") initially underwritten by Texas Commerce Bank, N.A. for
$80,000,000. On November 15, 1993, the Revolving Credit Facility
was syndicated to five additional banks and the aggregate amount
available to be borrowed was increased to $100,000,000. Borrowings
under the Revolving Credit Facility are available for Southern
Union's working capital and letter of credit requirements. At
June 30, 1994 the outstanding balance on the Revolving Credit
Facility was zero. The amount outstanding under the Revolving
Credit Facility at September 30, 1994 and November 4, 1994 was
$41,400,000 and $49,000,000, respectively.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
SOUTHERN UNION COMPANY
______________________
(Registrant)
Date November 9, 1994 By RONALD J. ENDRES
________________ ________________
Ronald J. Endres
Senior Vice President of
Administration, and
Chief Financial Officer
Date November 9, 1994 By DAVID J. KVAPIL
________________ _______________
David J. Kvapil
Vice President and Controller
(Principal Accounting Officer)
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS Exhibit 11
Three Months Ended Twelve Months Ended
September 30, September 30,
__________________ ___________________
1994 1993 1994 1993
________ ________ ________ ________
(in thousands of dollars,
except per share amounts)
Net earnings avail-
able for common
stock. . . . . . . . $(6,168) $(1,254) $ 3,464 $ 1,907
======= ======= ======= =======
Primary earnings per
share:
Average shares
outstanding. . . 11,449 8,271 10,667 8,256
Stock options
issued or
granted. . . . . 58 194 148 134
_______ _______ _______ _______
Average shares
outstanding. . . 11,507 8,465 10,815 8,390
======= ======= ======= =======
Primary earnings
per share. . . . $ (.54) $ (.15) $ .32 $ .23
======= ======= ======= =======
Fully diluted
earnings per share:
Average shares
outstanding. . . 11,449 8,271 10,667 8,256
Stock options
issued or
granted. . . . . 62 194 148 175
_______ _______ _______ _______
Average shares
outstanding. . . 11,511 8,465 10,815 8,431
======= ======= ======= =======
Fully diluted
earnings per
share. . . . . . $ (.54) $ (.15) $ .32 $ .23
======= ====== ======= =======
________________________________
Note: All periods have been adjusted for the 5% stock dividend
distributed on June 30, 1994 and the three-for-two stock
split distributed in the form of a 50% stock dividend on
March 9, 1994.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-END> SEP-30-1994
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $730,602,000
<OTHER-PROPERTY-AND-INVEST> $ 12,188,000
<TOTAL-CURRENT-ASSETS> $ 81,086,000
<TOTAL-DEFERRED-CHARGES> $ 75,571,000
<OTHER-ASSETS> $ 1,800,000
<TOTAL-ASSETS> $901,247,000
<COMMON> $ 11,502,000
<CAPITAL-SURPLUS-PAID-IN> $198,303,000
<RETAINED-EARNINGS> $(6,168,000)
<TOTAL-COMMON-STOCKHOLDERS-EQ> $202,843,000
$ 0
$ 0
<LONG-TERM-DEBT-NET> $478,922,000
<SHORT-TERM-NOTES> $ 41,400,000
<LONG-TERM-NOTES-PAYABLE> $ 0
<COMMERCIAL-PAPER-OBLIGATIONS> $ 0
<LONG-TERM-DEBT-CURRENT-PORT> $ 922,000
$ 0
<CAPITAL-LEASE-OBLIGATIONS> $ 0
<LEASES-CURRENT> $ 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $177,160,000
<TOT-CAPITALIZATION-AND-LIAB> $901,247,000
<GROSS-OPERATING-REVENUE> $ 69,114,000
<INCOME-TAX-EXPENSE> $ (3,156,000)
<OTHER-OPERATING-EXPENSES> $ 26,597,000
<TOTAL-OPERATING-EXPENSES> $ 41,245,000
<OPERATING-INCOME-LOSS> $ (956,000)
<OTHER-INCOME-NET> $ 1,535,000
<INCOME-BEFORE-INTEREST-EXPEN> $ 3,735,000
<TOTAL-INTEREST-EXPENSE> $ 9,903,000
<NET-INCOME> $ (6,168,000)
$ 0
<EARNINGS-AVAILABLE-FOR-COMM> $ (6,168,000)
<COMMON-STOCK-DIVIDENDS> $ 0
<TOTAL-INTEREST-ON-BONDS> $ 0
<CASH-FLOW-OPERATIONS> $(28,344,000)
<EPS-PRIMARY> $ (.54)
<EPS-DILUTED> $ (.54)
</TABLE>