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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
For the quarterly period ended
------------------------------
September 30, 1995
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) 477-5852
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange in
which registered
------------------- ------------------------
Common Stock, par value $1 per share New York Stock Exchange
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 re-
quirements for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's Common Stock outstanding
on November 2, 1995 was 11,532,796.
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SOUTHERN UNION COMPANY AND SUBSIDIARIES
FORM 10-Q
September 30, 1995
Index
PART I. FINANCIAL INFORMATION Page(s)
-------
Item 1. Financial Statements
Statements of consolidated operations
- three and twelve months ended
September 30, 1995 and 1994
Consolidated balance sheet - September 30,
1995 and 1994 and June 30, 1995
Statement of common stockholders' equity -
three months ended September 30, 1995
and twelve months ended June 30, 1995
Statements of consolidated cash flows -
three and twelve months ended
September 30, 1995 and 1994
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
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Three Months Ended September 30,
--------------------------------
1995 1994
------------ ------------
(thousands of dollars, except
shares and per share amounts)
Operating revenues............ $ 69,950 $ 69,114
Gas purchase costs............ 27,829 28,825
--------- ---------
Operating margin............ 42,121 40,289
--------- ---------
Operating expenses:
Operating, maintenance and
general................... 26,227 26,419
Taxes, other than on income. 6,284 6,554
Depreciation and amortiza-
tion...................... 8,540 7,956
--------- ---------
Total operating expenses.. 41,051 40,929
--------- ---------
Net operating revenues
(loss)................... 1,070 (640)
--------- ---------
Other income (expenses):
Interest on long-term debt.. (8,825) (9,368)
Other interest.............. (313) (535)
Dividends on preferred
securities of subsidiary
trust..................... (2,370) --
Other, net.................. 1,932 1,219
--------- ---------
Total other expenses, net. (9,576) (8,684)
--------- ---------
Loss before income taxes.. (8,506) (9,324)
Federal and state income
taxes (benefit)............. (2,908) (3,156)
--------- ---------
Net loss attributable to
common stock................ $ (5,598) $ (6,168)
========= =========
Net loss per common share..... $ (.49) $ (.54)
========= =========
Weighted average shares
outstanding................. 11,518,622 11,449,193
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Twelve Months Ended September 30,
---------------------------------
1995 1994
------------ ------------
(thousands of dollars, except
shares and per share amounts)
Operating revenues............ $ 480,882 $ 411,213
Gas purchase costs............ 240,843 225,614
--------- ---------
Operating margin............ 240,039 185,599
--------- ---------
Operating expenses:
Operating, maintenance and
general..................... 103,317 93,989
Taxes, other than on income. 39,073 33,740
Depreciation and amortiza-
tion...................... 32,669 26,208
--------- ---------
Total operating expenses.. 175,059 153,937
--------- ---------
Net operating revenues.... 64,980 31,662
--------- ---------
Other income (expenses):
Interest on long-term debt.. (36,905) (30,048)
Other interest.............. (2,214) (1,895)
Dividends on preferred
securities of subsidiary
trust..................... (3,529) --
Other, net.................. 5,529 6,428
--------- ---------
Total other expenses, net. (37,119) (25,515)
--------- ---------
Earnings before income
taxes................... 27,861 6,147
Federal and state income
taxes....................... 11,222 2,683
--------- ---------
Net earnings available for
common stock................ $ 16,639 $ 3,464
========= =========
Net earnings per common share. $ 1.45 $ .32
========= =========
Weighted average shares
outstanding................. 11,496,091 10,667,038
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, June 30,
---------------------
1995 1994 1995
---------- ---------- ----------
(thousands of dollars)
Property, plant and equipment:
Plant in service............. $ 894,468 $ 827,027 $ 882,769
Construction work in
progress................... 14,701 23,571 14,670
--------- --------- ---------
909,169 850,598 897,439
Less accumulated deprecia-
tion and amortization...... (308,875) (286,062) (303,327)
--------- --------- ---------
600,294 564,536 594,112
Additional purchase cost
assigned to utility
plant, net................. 153,436 166,066 154,534
--------- --------- ---------
Net property, plant and
equipment.................. 753,730 730,602 748,646
--------- --------- ---------
Current assets:
Cash and cash equivalents.... -- 1,926 39,015
Short-term investments....... -- -- 19,582
Accounts receivable, billed
and unbilled............... 34,036 35,149 35,465
Inventories, principally
stored gas................. 33,064 40,885 23,561
Deferred gas purchase costs
due from customers......... 22,664 -- 7,641
Prepayments and other........ 2,513 3,126 1,349
--------- --------- ---------
Total current assets....... 92,277 81,086 126,613
--------- --------- ---------
Deferred charges............... 112,944 75,571 114,167
Real estate.................... 10,398 12,188 10,742
Other.......................... 2,045 1,800 2,334
--------- --------- ---------
Total........................ $ 971,394 $ 901,247 $1,002,502
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
STOCKHOLDERS' EQUITY AND LIABILITIES
September 30, June 30,
---------------------
1995 1994 1995
---------- ---------- ----------
(thousands of dollars)
Common stockholders' equity:
Common stock, $1 par value;
authorized 50,000,000
shares; issued 11,570,247
shares..................... $ 11,570 $ 11,502 $ 11,570
Premium on capital stock..... 198,819 198,303 198,819
Less treasury stock, at cost. (794) (794) (794)
Retained earnings (deficit).. 10,471 (6,168) 16,069
--------- --------- ---------
Total common stockholders'
equity..................... 220,066 202,843 225,664
Company-obligated mandatorily
redeemable preferred
securities of subsidiary
trust holding solely
$103,093,000 principal
amount of 9.48% subordinated
notes of Southern Union
due 2025..................... 100,000 -- 100,000
Long-term debt................. 442,320 478,922 462,503
--------- --------- ---------
Total capitalization......... 762,386 681,765 788,167
Current liabilities:
Long-term debt due within
one year................... 780 922 770
Notes payable................ -- 41,400 --
Accounts payable............. 28,432 36,334 28,784
Federal, state and local
taxes...................... 6,088 4,781 6,310
Accrued interest............. 6,303 6,432 15,194
Accrued dividends on
preferred securities of
subsidiary trust........... 2,370 -- --
Customer deposits............ 14,487 13,311 14,166
Deferred gas purchase costs
due to customers........... -- 2,330 --
Other........................ 15,864 14,847 13,621
--------- --------- ---------
Total current liabilities.. 74,324 120,357 78,845
--------- --------- ---------
Deferred credits and other
liabilities.................. 98,329 69,445 99,434
Accumulated deferred income
taxes........................ 36,355 29,680 36,056
Commitments and contingencies.. -- -- --
--------- --------- ---------
Total........................ $ 971,394 $ 901,247 $1,002,502
========= ========= ==========
See accompanying notes to the consolidated financial statements.
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... -- -- -- 16,069 16,069
Exercise of
stock
options...... 73 547 -- -- 620
------- -------- ----- ------- --------
Balance June 30,
1995............. 11,570 198,819 (794) 16,069 225,664
Net earnings
(loss)........... -- -- -- (5,598) (5,598)
------- -------- ----- ------- --------
Balance
September 30,
1995............. $11,570 $198,819 $(794) $10,471 $220,066
======= ======== ===== ======= ========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended September 30,
--------------------------------
1995 1994
------------ ------------
(thousands of dollars)
Net cash flow used in
operating activities......... $ (26,311) $ (28,344)
--------- ---------
Cash flow from (used in)
investing activities:
Additions to property,
plant and equipment...... (14,060) (14,289)
Acquisition of operations,
net of cash received..... -- (1,072)
Decrease in short-term
investments, net......... 19,582 --
Other, net................. 1,279 (1,474)
--------- ---------
Net cash flows from
(used in) investing
activities.............. 6,801 (16,835)
--------- ---------
Cash flow from (used in)
financing activities:
Net borrowings under
revolving credit
facility................. -- 41,400
Repayment of debt.......... (19,649) (212)
Other, net................. 144 36
--------- ---------
Net cash flows from
(used in) financing
activities............. (19,505) 41,224
--------- ---------
Decrease in cash and cash
equivalents.................. (39,015) (3,955)
Cash and cash equivalents at
beginning of period.......... 39,015 5,881
--------- ---------
Cash and cash equivalents at
end of period................ $ -- $ 1,926
========= =========
Supplemental disclosures of
cash flow information:
Cash paid during the
period for:
Interest............... $ 17,557 $ 18,498
========= =========
Income taxes
(refunded)............ $ (5,357) $ 4
========= =========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Twelve Months Ended September 30,
---------------------------------
1995 1994
------------ ------------
(thousands of dollars)
Net cash flow from
operating activities........ $ 43,675 $ 75,246
--------- ---------
Cash flow from (used in)
investing activities:
Additions to property,
plant and equipment..... (67,213) (49,917)
Acquisition of opera-
tions, net of cash
received................ -- (408,930)
Collection of note
receivable.............. -- 6,000
Other, net................ 1,733 1,678
--------- ---------
Net cash flows used in
investing activities.. (65,480) (451,169)
--------- ---------
Cash flow from (used in)
financing activities:
Net payments under
revolving credit
facility................ (41,400) (29,000)
Repayment of debt......... (35,649) (107,741)
Issuance of debt.......... -- 475,000
Premium on early
extinguishment of debt.. -- (13,715)
Debt issuance costs....... -- (5,439)
Proceeds from rights
offering, net........... -- 49,351
Proceeds from issuance of
preferred securities of
subsidiary trust........ 100,000 --
Issuance cost of pre-
ferred securities of
subsidiary trust........ (3,799) --
Other, net................ 727 (326)
--------- ---------
Net cash flows from
financing activities.. 19,879 368,130
--------- ---------
Decrease in cash and cash
equivalents................. (1,926) (7,793)
Cash and cash equivalents at
beginning of period......... 1,926 9,719
--------- ---------
Cash and cash equivalents at
end of period............... $ -- $ 1,926
========= =========
Supplemental disclosures of
cash flow information:
Cash paid during the
period for:
Interest.............. $ 38,046 $ 27,647
========= =========
Income taxes
(refunded).......... $ (2,828) $ 2,798
========= =========
See accompanying notes to the consolidated financial statements.
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.
As described below, the Company acquired Missouri Gas Energy on
January 31, 1994. Accordingly, the earnings from operations of
Missouri Gas Energy are consolidated with the Company subsequent
to that date. The timing of the acquisition of Missouri Gas
Energy substantially impacts the comparability of the twelve-
month periods ended September 30, 1995 and 1994.
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 fiscal year ended June 30, 1995. Certain
prior period amounts have been reclassified to conform with the
current period presentation.
ACQUISITION AND DIVESTITURE
On January 31, 1994, the Company consummated the acquisition of
Missouri Gas Energy (the "Missouri Acquisition") from Western
Resources, Inc. ("Western Resources" or the "seller" of the
Missouri properties) for $400,300,000 in cash, based on account
balances as of December 31, 1993. The final purchase price,
which was determined through post-closing adjustments and subse-
quent arbitration, was approximately $401,600,000. See
"Contingencies." The Missouri Acquisition was financed through
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 a $50,000,000 common stock 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 earnings from the operations of Missouri Gas
Energy have been included in the statement of consolidated opera-
tions since February 1, 1994. Missouri Gas Energy serves
approximately 478,000 customers 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 approxi-
mately $68,000,000 reflects the excess of the purchase price over
the historical book carrying value of net assets acquired plus
various accounting entries to record certain preacquisition
contingencies. The additional purchase cost assigned to utility
plant is amortized on a straight-line basis over forty years.
On October 16, 1995, Southern Union Company entered into a pur-
chase agreement to sell certain gas distribution operations of
the Company in the Texas and Oklahoma Panhandles and to sell
Western Gas Interstate Company ("WGI"), a wholly-owned subsidiary
of the Company, exclusive of certain WGI assets in El Paso, Texas
and WGI's Del Norte interconnect operation which transmits
natural gas into Mexico, for approximately $14,700,000. The sale
is subject to approval by the Federal Regulatory Energy Commis-
sion ("FERC") and the Oklahoma Corpo-ration Commission and must
be reported to the Railroad Commission of Texas.
PREFERRED SECURITIES OF SUBSIDIARY TRUST
On May 17, 1995, Southern Union Financing I (the "Subsidiary
Trust"), a consolidated wholly-owned subsidiary of Southern
Union, issued $100,000,000 of 9.48% Trust Originated Preferred
Securities (the "Preferred Securities"). In connection with the
Subsidiary Trust's issuance of the Preferred Securities and the
related purchase by Southern
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Union of all of the Subsidiary Trust's common securities (the
"Common Securities"), Southern Union issued to the Subsidiary
Trust $103,092,800 principal amount of its 9.48% Subordinated
Deferrable Interest Notes, due 2025 (the "Subordinated Notes").
The sole assets of the Subsidiary Trust are and will be the Sub-
ordinated Notes. The interest and other payment dates on the
Subordinated Notes correspond to the distribution and other pay-
ment dates on the Preferred Securities and the Common Securities.
Under certain circumstances, the Subordinated Notes may be dis-
tributed to holders of the Preferred Securities and holders of
the Common Securities in liquidation of the Subsidiary Trust.
The Subordinated Notes are redeemable at the option of the Com-
pany on or after May 17, 2000, at a redemption price of $25 per
Subordinated Note plus accrued and unpaid interest. The Pre-
ferred Securities and the Common Securities will be redeemed on a
pro rata basis to the same extent as the Subordinated Notes are
repaid, at $25 per Preferred Security and Common Security plus
accumulated and unpaid distributions. Southern Union's obliga-
tions under the Subordinated Notes and related agreements, taken
together, constitute a full and unconditional guarantee by
Southern Union of payments due on the Preferred Securities. As
of September 30, 1995, 4,000,000 shares of Preferred Securities
were outstanding.
CAPITALIZATION
First mortgage bonds and other long-term debt outstanding,
including current maturities, were as follows:
September 30, June 30,
1995 1995
------------- ------------
(thousands of dollars)
First mortgage bonds:
11.5% due 2000 -- collateralized
by certain utility plant in
service......................... $ 1,200 $ 1,200
Other long-term debt:
7.60% Senior notes due 2024..... 440,000 460,000
Other............................. 1,900 2,073
-------- --------
Total debt.......................... 443,100 463,273
Less current portion.............. 780 770
-------- --------
Total long-term debt............ $442,320 $462,503
======== ========
On July 20, 1995, $10,000,000 of Senior Debt Securities at $985
per $1,000 note were repurchased and on July 26, 1995,
$10,000,000 at $963 per $1,000 note were repurchased with pro-
ceeds from the Preferred Securities.
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 used to fund the Rio Grande Acquisition and repurchase
all outstanding Preferred Stock; (iii) refinance, on January 31,
1994, $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; (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.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UTILITY REGULATION AND RATES
Pursuant to a 1989 Missouri Public Service Commission ("MPSC")
order, Missouri Gas Energy is engaged in a major gas safety pro-
gram in its service territories. This program includes replace-
ment 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 (the "Missouri Safety Program"). In recognition of
the significant capital expenditures associated with this safety
program, the MPSC permits the deferral, and subsequent recovery
through rates, of depreciation expense, property taxes and asso-
ciated carrying costs, related to the Missouri Safety Program.
Missouri Gas Energy was required to continue the Missouri Safety
Program and has deferred depreciation expense, property taxes and
carrying costs of approximately $1,584,000 for the three-month
period ended September 30, 1995.
The continuation of the Missouri Safety Program will result in
significant levels of future capital expenditures. The Company
estimates incurring capital expenditures of approximately
$20,000,000 in fiscal 1996 related to this program.
Under the order of the FERC docket Nos. RP 94-296 and PR 95-3,
Williams Natural Gas Company, a supplier of gas to Missouri Gas
Energy, is allowed recovery of certain unrecovered deferred gas
costs of approximately $27,700,000. These costs were related to
gas deliveries prior to April 30, 1994. Missouri Gas Energy
filed a mechanism to recover these costs under case GR 95-33
with the MPSC which was approved and allows recovery of these
costs from its Missouri customers. The receivable and liability
associated with these costs have been recorded as a deferred
charge and a deferred liability, respectively, on the balance
sheet as of September 30, 1995.
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 sub-
stances 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 determina-
tion 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. The Company has
denied liability for any clean-up costs for various reasons,
including the fact that it is not a successor to any entity that
owned or operated the site in question. Should Southern Union be
made party to any action seeking recovery of remaining clean-up
costs, the Company intends to vigorously defend against such an
action. The Company has made demands of the appropriate insurers
that they assume the 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 finan-
cial position, results of operations or cash flows.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Southern Union and Western Resources entered into an Environ-
mental Liability Agreement (the "Environmental Liability Agree-
ment") at the closing of the Missouri Acquisition. Subject to
the accuracy of certain representationsmade by Western Resources
in the Missouri Asset Purchase Agreement, the Environmental
Liability Agreement provides for a tiered approach to the alloca-
tion of substantially all liabilities under environmental laws
that may exist or arise with respect to Missouri Gas Energy. At
the present time and based upon information available to manage-
ment, the Company believes that the costs of any remediation
efforts that may be required for these sites for which it may
ultimately have responsibility will not exceed the aggregate
amount subject to substantial sharing by Western Resources.
On June 1, 1994 Southern Union filed a lawsuit in the United
States District Court for the Western District of Missouri,
against Western Resources. The primary subject of the lawsuit,
and the only remaining issues in the litigation, are the Com-
pany's claims for damages against Western Resources for fraudu-
lent misrepresentation, breach of contract, breach of covenant
and other grounds arising out of certain gas supply and trans-
portation agreements with respect to the Missouri Acquisition.
Southern Union is seeking damages in excess of $50,000,000.
Trial by jury is currently scheduled for June 1996.
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, results of operations or cash flows.
In the Missouri Acquisition, the Company assumed the Missouri
portion of certain obligations related to a 1990 settlement of a
Wyoming Tight Sands anti-trust claim. 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 bor-
rowings used for the lump sum payment. In the event the trust
does not receive cash payments from the gas suppliers as provided
by the Tight Sands settlement agreements, the Company is com-
mitted to pay its applicable portion of the amount owed the
lender of the credit-facility borrowings. The Company's
allocable unpaid portion of the amount the trust owes the lender
at September 30, 1995 was approximately $7,846,000.
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, indus-
trial, agricultural and other customers in communities throughout
Texas, western Missouri and the Oklahoma panhandle. The Com-
pany's principal line of business is the distribution of natural
gas as a public utility through Southern Union Gas and Missouri
Gas Energy, each of which is a division of the Company. In addi-
tion, the Company operates interstate and intrastate natural gas
pipeline systems, markets natural gas to end-users, holds invest-
ments 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 condi-
tion 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 sea-
sonal 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"). Missouri Gas
Energy serves approximately 478,000 customers in central and
western Missouri, including Kansas City, St. Joseph, Joplin and
Monett. The Missouri Acquisition was accounted for as a purchase
and, accordingly, the operating results of Missouri Gas Energy
have been included in the Company's consolidated operating
results since the date of acquisition. See "Acquisition and
Divestiture" in the Notes to Consolidated Financial Statements
for the quarter ended September 30, 1995, included herein. In
addition, since the majority of Missouri Gas Energy's operating
margin is earned during the winter heating season, 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. For these reasons, the results of operations of
the Company for the periods subsequent to the Missouri Acquisi-
tion are not comparable to those periods prior to the acquisition
nor are certain 1995 results of operations comparable with
previous periods.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 and 1994
- - ----------------------------------------------
The Company recorded a net loss attributable to common stock of
$5,598,000 for the three-month period ended September 30, 1995
compared to a net loss of $6,168,000 for the three-month period
ended September 30, 1994. Net loss per common share, based on
weighted average shares outstanding during the period, was $.49
in 1995 compared with a net loss per common share of $.54 in
1994. Due to the seasonal nature of the gas utility business,
the three-month period ending September 30 is typically a loss
period.
Operating revenues were $69,950,000 for the three-month period
ended September 30, 1995, an increase of 1%, compared with
operating revenues of $69,114,000 in 1994. Gas purchase costs
for the three-month period ended September 30, 1995 were
$27,829,000, a decrease of 3%, compared with $28,825,000 in 1994.
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. The increase in operating revenues between
periods was primarily the result of a 7% increase in gas sales
volumes to 12,423 MMcf in 1995 from 11,645 MMcf in 1994 which was
almost entirely offset by a decrease in gas purchase costs. Gas
purchase costs were also effected by the increase in gas sales
volumes which were more than offset by the decrease in the
average cost of gas from $2.48 per Mcf in 1994 to $2.24 per Mcf
in 1995. The decrease in the average cost of gas primarily is
the result of decreases in average spot market gas prices
throughout the company's distribution system as a result of sea-
sonal impacts on demands for natural gas and the ensuing competi-
tive pricing within the industry.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Operating margin (operating revenues less gas purchase costs) for
the three-month period ended September 30, 1995 was $42,121,000
compared to $40,289,000 in 1994. The increase in operating mar-
gin is the result of increased gas sales volumes due principally
to growth in pipeline and marketing sales, increases in the
residential customer base and cooler weather experienced in the
final days of the three-month period ended September 30, 1995.
Operating expenses, which include operating, maintenance and
general expenses, taxes other than on income, and depreciation
and amortization, were $41,051,000 for the three-month period
ended September 30, 1995, an increase of $122,000, compared with
$40,929,000 in 1994. The increase is primarily a result of a
$584,000 increase in depreciation and amortization due to sig-
nificant software additions in late 1994. Offsetting the
increase in depreciation and amortization were decreases in
operating, maintenance and general expenses and taxes, other
than on income resulting from a decrease in payroll and payroll-
related taxes due to a reduction in employees and other cost
cutting measures.
Dividends on preferred securities of subsidiary trust were
$2,370,000 for the three-month period ended September 30, 1995,
compared with nil in 1994. The dividends on preferred securities
of subsidiary trust for the three-month period ended
September 30, 1995 is the result of the issuance of $100,000,000
of 9.48% Trust Originated Preferred Securities ("Preferred
Securities") on May 17, 1995, by Southern Union Financing I, a
consolidated wholly-owned subsidiary of Southern Union. See
"Preferred Securities of Subsidiary Trust" in the Notes to the
Consolidated Financial Statements for the three-month period
ended September 30, 1995.
Interest expense was $9,138,000 for the three-month period ended
September 30, 1995, a decrease of 8%, compared to $9,903,000 in
1994. The decrease in interest expense is due to the repurchase
of $35,000,000, of the company's outstanding 7.60% Senior Notes
during June and July 1995 with the net proceeds from the Pre-
ferred Securities. In addition, the net proceeds from the Pre-
ferred Securities provided working capital for operations for the
company, allowing for less borrowings on the company's revolving
credit facility during the three-month period ended September 30,
1995 as compared to the same period in 1994. See "Capitaliza-
tion" in the Notes to the Consolidated Financial Statements for
the three-month period ended September 30, 1995.
Other income for the three-month period ended September 30, 1995
was $1,932,000 compared to $1,219,000 in 1994. Other income for
the three-month period ended September 30, 1995 consists of:
approximately $1,019,000 related to the deferral of interest
expense associated with the Missouri Gas Energy Safety Program;
rental income from Lavaca Realty Company ("Lavaca Realty"), the
Company's real estate subsidiary, of approximately $668,000 which
was offset by operating expenses of approximately $324,000; and
investment interest and interest on notes receivable of approxi-
mately $525,000. Other income for 1994 included: rental income
from Lavaca Realty of approximately $661,000 which was offset by
operating expenses of approximately $316,000; approximately
$360,000 related to the deferral of interest expense associated
with the Missouri Gas Energy Safety Program; and investment
interest and interest on notes receivable of approximately
$112,000.
For the three-month period ended September 30, 1995, the federal
and state income tax benefit decreased $248,000, or 8%, over the
same period in 1994 due primarily to a reduction in loss from
operations as noted above.
Twelve Months Ended September 30, 1995 and 1994
- - -----------------------------------------------
The Company recorded net earnings available for common stock of
$16,639,000 for the twelve-month period ended September 30, 1995
compared with net earnings of $3,464,000 in 1994. Net earnings
per common share, based
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
on weighted average shares outstanding during the period, were
$1.45 in 1995 compared with net earnings per common share of $.32
in 1994.
Operating revenues were $480,882,000 for the twelve-month period
ended September 30, 1995, an increase of 17%, compared with
operating revenues of $411,213,000 in 1994. Gas purchase costs
for the twelve-month period ended September 30, 1995 were
$240,843,000, an increase of 7%, compared with gas purchase costs
of $225,614,000 in 1994. Operating revenues increased during the
twelve-month period ended September 30, 1995 as a result of a 36%
increase in gas sales volume from 77,609 MMcf in 1994 to 105,617
MMcf in 1995. Gas purchase costs were effected by the increase
in sales volume but was partially offset by a decrease in the
average cost of gas to $2.28 per Mcf in 1995 from $2.91 per Mcf
in 1994, discussed above. The increase in volumes is principally
due to a 21% increase in the average customer base to approxi-
mately 963,000 customers for the twelve months ended
September 30, 1995 compared with an average customer base of
approximately 795,000 in 1994 as a result of the Missouri
Acquisition. Operating revenues and gas purchase costs were also
impacted by warmer than normal weather for the Company's opera-
tions in Texas and Oklahoma which comprise 51% of the Company's
customer base. Weather for these operations for the twelve-month
period ended September 30, 1995 was 78% of normal compared to 90%
of normal weather in 1994. Missouri Gas Energy's service terri-
tories experienced 91% of normal weather for 1995 compared to 93%
of normal weather in 1994. Missouri Gas Energy contributed
operating revenues and gas purchase costs of $275,966,000 and
$147,985,000, respectively for the twelve-month period ended
September 30, 1995 compared to $176,675,000 and $100,031,000,
respectively, in 1994. The remaining operations of the Company
were responsible for a decrease in operating revenue of
$29,622,000 and a decrease in gas purchase costs of $32,725,000,
primarily due to a reduction in volumes resulting from the warmer
than normal weather and a decrease in the average cost per Mcf of
gas, both previously discussed above.
Operating margin for the twelve-month period ended September 30,
1995 was $240,039,000 compared to $185,599,000 in 1994. The
increase in operating margin resulted primarily from the Missouri
Acquisition which contributed approximately $51,337,000 as well
as an increase in transportation revenues of $3,008,000. The
Company's operating margin for the twelve-month period ended
September 30, 1995 was also favorably impacted by an annualized
rate increase of $463,000 in El Paso, Texas effective
November 1, 1993. In addition, effective October 15, 1993, the
MPSC increased Missouri Gas Energy's natural gas rates by
$9,750,000 annually. 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 $175,059,000 for the twelve-month period ended
September 30, 1995, an increase of 14%, compared with operating
expenses of $153,937,000 in 1994. The increase in these expenses
is principally due to the overall increase in operating expenses
attributable to the Missouri Acquisition of approximately
$23,145,000. The remaining operations of the Company were
responsible for a decrease in operating expenses of approximately
$2,023,000 as a result of the Company's efforts to reduce costs.
Interest expense on long-term debt was $36,905,000 for the
twelve-month period ended September 30, 1995, an increase of 23%,
compared to $30,048,000 in 1994. The increase in interest
expense is due to the average 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 $140,000,000 in long-term debt. The net proceeds from the
sale of the Senior Debt Securities, together with the net pro-
ceeds from the $50,000,000 Rights Offering and working capital
from operations, was used to fund the Missouri Acquisition, the
acquisition of Rio Grande Valley Gas Company on
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1993, and refinance certain short-term and long-
term debt. See "Capitalization" in the Notes to the Consolidated
Financial Statements for the twelve months ended September 30,
1995 included herein.
Dividends on preferred securities of subsidiary trust were
$3,529,000 for the twelve-month period ended September 30, 1995,
compared with nil in 1994, previously discussed. See "Preferred
Securities of Subsidiary Trust" in the Notes to the Consolidated
Financial Statements for the three-month period ended
September 30, 1995.
Other income for the twelve-month period ended September 30, 1995
was $5,529,000 compared to $6,428,000 in 1994. Other income for
the twelve-month period ended September 30, 1995 included:
approximately $3,278,000 related to the deferral of interest
expense associated with the Missouri Gas Energy Safety Program;
rental income from Lavaca Realty of approximately $2,654,000
which was offset by operating expenses of approximately
$1,162,000; investment interest and interest on notes receivable
of approximately $1,338,000; and approximately $208,000 from gas
appliance merchandising. This was partially offset by approxi-
mately $750,000 for the write-down to estimated fair market value
of certain Lavaca Realty real estate held for sale. Other income
for the twelve-month period ended September 30, 1994 included:
rental income from Lavaca Realty of approximately $2,324,000
which was offset by operating expenses of approximately
$1,289,000; a non-recurring accounting adjustment of approxi-
mately $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.
For the twelve-month period ended September 30, 1995, federal and
state income taxes increased $8,539,000, or 318%, over the same
period in 1994 due primarily to improved pre-tax earnings as
discussed above.
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.
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, 1995 and 1994:
Three Months Twelve Months
Ended September 30, Ended September 30,
1995 1994 1995(a) 1994(a)
-------- -------- -------- ---------
Average number of gas
sales customers
served:
Residential........ 857,411 850,910 869,737 723,114
Commercial......... 86,359 84,453 89,148 67,921
Industrial and
irrigation....... 685 646 689 797
Public authorities
and other........ 2,720 2,716 2,799 2,647
Pipeline and
marketing........ 644 545 475 356
-------- -------- -------- --------
Total average
customers
served....... 947,819 939,270 962,848 794,835
======== ======== ======== ========
Gas sales in millions
of cubic feet (MMcf)
Residential........ 5,066 5,060 62,927 48,424
Commercial......... 3,165 3,189 28,764 21,969
Industrial and
irrigation....... 603 652 2,305 2,121
Public authorities
and other........ 228 170 3,267 2,913
Pipeline and
marketing........ 2,668 2,043 8,221 7,730
-------- -------- -------- --------
Gas sales
billed....... 11,730 11,114 105,484 83,157
Net change in
unbilled gas
sales............ 693 531 133 (5,548)
-------- -------- -------- --------
Total gas
sales........ 12,423 11,645 105,617 77,609
======== ======== ======== ========
Gas sales revenues
(thousands of
dollars):
Residential........ $ 38,590 $ 38,030 $305,119 $268,855
Commercial......... 13,806 14,278 118,255 102,244
Industrial and
irrigation....... 1,930 2,117 8,185 8,838
Public authorities
and other........ 736 774 7,839 10,902
Pipeline and
marketing........ 5,119 4,681 16,847 18,301
-------- -------- -------- --------
Gas revenues
billed....... 60,181 59,880 456,245 409,140
Net change in
unbilled gas
sales revenues... 3,704 2,291 469 (28,427)
-------- -------- -------- --------
Total gas
sales
revenues..... $ 63,885 $ 62,171 $456,714 $380,713
======== ======== ======== ========
Gas sales margin
(thousands of
dollars)............. $ 36,056 $ 33,346 $215,871 $155,099
======== ======== ======== ========
Gas sales revenue per
thousand cubic feet
(Mcf) billed:
Residential........ $ 7.617 $ 7.516 $ 4.849 $ 5.552
Commercial......... 4.362 4.478 4.111 4.654
Industrial and
irrigation....... 3.201 3.245 3.551 4.167
Public authorities
and other........ 3.226 4.555 2.399 3.743
Pipeline and
marketing........ 1.919 2.291 2.049 2.368
Weather effect:
Degree days.......... 58 32 3,641 1,942
Percent of normal,
based on 30-year
average............ 200% 110% 89% 91%
Gas transported in
millions of cubic
feet (Mmcf).......... 15,321 14,215 69,698 44,201
Gas transportation
revenues (thousands
of dollars).......... $ 3,797 $ 3,122 $ 19,892 $ 11,615
- - --------------------------
(a) Missouri Gas Energy, a division of Southern Union, was acquired on
January 31, 1994 and its results of operations were included in the
Company's consolidated results of operations beginning February 1,
1994. For this reason, the consolidated results of operations of
the Company for the period subsequent to the acquisition are not
comparable to prior periods.
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 sea-
sonality results in a high level of cash flow needs during the
peak winter heating season 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 source of funds during the three-month period ended
September 30, 1995 included approximately $19,582,000 from the
maturity of short-term investments. This source, along with
beginning cash balances of $39,015,000, provided funds for the
repurchase of approximately $20,000,000 in 7.60% Senior Notes and
additions to property, plant and equipment of approximately
$14,000,000 and other seasonal working capital needs of the Com-
pany.
The effective interest rate under the Company's current debt
structure is approximately 7.8% (including interest and the
amortization of debt issuance costs and redemption premiums on
refinanced debt).
The Company has availability under a $100,000,000 revolving
credit facility with a three-year term (the "Revolving Credit
Facility") underwritten by Texas Commerce Bank, N.A. and syndi-
cated to four additional banks. Borrowings under the Revolving
Credit Facility are available for Southern Union's working capi-
tal, letter of credit requirements and other general corporate
purposes. At June 30, 1995 the outstanding balance under the
Revolving Credit Facility was nil. The amount outstanding under
the Revolving Credit Facility at September 30, 1995 was nil and
at November 2, 1995 was approximately $8,700,000.
On May 17, 1995, Southern Union Financing I (the "Subsidiary
Trust"), a consolidated wholly-owned subsidiary of Southern
Union, issued $100,000,000 of 9.48% Trust Originated Preferred
Securities (the "Preferred Securities"). In connection with the
Subsidiary Trust's issuance of the Preferred Securities and the
related purchase by Southern Union of all of the Subsidiary
Trust's common securities. Southern Union issued to the Sub-
sidiary Trust $103,092,800 principal amount of its 9.48% Subordi-
nated Deferrable Interest Notes, due 2025. The issuance of the
Preferred Securities was part of a $300,000,000 shelf registra-
tion filed with the Securities and Exchange Commission on
March 29, 1995. Southern Union may sell a combination of pre-
ferred securities of financing trusts and senior and subordinated
debt securities of Southern Union of approximately $200,000,000
(the remaining shelf) from time to time, at prices determined at
the time of any offering. The net proceeds from the $100,000,000
Preferred Securities offering have been used to repurchase
$35,000,000 of 7.60% Senior Debt Securities in June and July,
1995 and have provided working capital for seasonal needs.
<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 6, 1995 By RONALD J. ENDRES
---------------- ----------------
Ronald J. Endres
Senior Vice President of
Administration, and
Chief Financial Officer
Date November 6, 1995 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,
------------------ -------------------
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands of dollars, except per
share amounts)
Net earnings (loss)
available for
common stock......... $ (5,598) $ (6,168) $ 16,639 $ 3,464
======== ======== ======== ========
Primary earnings per
share:
Average shares
outstanding...... 11,519 11,449 11,496 10,667
Stock options
issued or
granted.......... -- -- 250 148
-------- -------- -------- --------
Average shares
outstanding...... 11,519 11,449 11,746 10,815
======== ======== ======== ========
Primary earnings
(loss) per
share............ $ (.49) $ (.54) $ 1.42 $ .32
======== ======== ======== ========
Fully diluted
earnings per share:
Average shares
outstanding...... 11,519 11,449 11,496 10,667
Stock options
issued or
granted.......... -- -- 279 148
-------- -------- -------- --------
Average shares
outstanding...... 11,519 11,449 11,775 10,815
======== ======== ======== ========
Fully diluted
earnings (loss)
per share........ $ (.49) $ (.54) $ 1.41 $ .32
======== ======== ======== ========
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $ 753,730,000
<OTHER-PROPERTY-AND-INVEST> $ 10,398,000
<TOTAL-CURRENT-ASSETS> $ 92,277,000
<TOTAL-DEFERRED-CHARGES> $ 112,944,000
<OTHER-ASSETS> $ 2,045,000
<TOTAL-ASSETS> $ 971,394,000
<COMMON> $ 11,570,000
<CAPITAL-SURPLUS-PAID-IN> $ 198,819,000
<RETAINED-EARNINGS> $ 10,471,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> $ 220,066,000
$ 0
$ 100,000,000
<LONG-TERM-DEBT-NET> $ 442,320,000
<SHORT-TERM-NOTES> $ 0
<LONG-TERM-NOTES-PAYABLE> $ 0
<COMMERCIAL-PAPER-OBLIGATIONS> $ 0
<LONG-TERM-DEBT-CURRENT-PORT> $ 780,000
$ 0
<CAPITAL-LEASE-OBLIGATIONS> $ 0
<LEASES-CURRENT> $ 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $ 208,228,000
<TOT-CAPITALIZATION-AND-LIAB> $ 971,394,000
<GROSS-OPERATING-REVENUE> $ 69,950,000
<INCOME-TAX-EXPENSE> $ (2,908,000)
<OTHER-OPERATING-EXPENSES> $ 26,227,000
<TOTAL-OPERATING-EXPENSES> $ 41,051,000
<OPERATING-INCOME-LOSS> $ 1,070,000
<OTHER-INCOME-NET> $ 1,932,000
<INCOME-BEFORE-INTEREST-EXPEN> $ 3,540,000
<TOTAL-INTEREST-EXPENSE> $ 9,138,000
<NET-INCOME> $ (5,598,000)
$ (2,370,000)
<EARNINGS-AVAILABLE-FOR-COMM> $ (5,598,000)
<COMMON-STOCK-DIVIDENDS> $ 0
<TOTAL-INTEREST-ON-BONDS> $ 0
<CASH-FLOW-OPERATIONS> $ (26,311,000)
<EPS-PRIMARY> $ (.49)
<EPS-DILUTED> $ (.49)
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