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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------
FORM 10-Q
For the quarterly period ended
------------------------------
December 31, 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 require-
ments for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's Common Stock outstanding
on February 2, 1996 was 12,163,535.
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SOUTHERN UNION COMPANY AND SUBSIDIARIES
FORM 10-Q
December 31, 1995
Index
PART I. FINANCIAL INFORMATION Page(s)
-------
Item 1. Financial Statements
Statements of consolidated operations -
three, six and twelve months ended
December 31, 1995 and 1994
Consolidated balance sheet - December 31,
1995 and 1994 and June 30, 1995
Statement of common stockholders' equity -
six months ended December 31, 1995 and
twelve months ended June 30, 1995
Statements of consolidated cash flows -
three, six and twelve months ended
December 31, 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 4. Results of Votes of Security Holders
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
December 31,
-------------------------
1995 1994
----------- -----------
(thousands of dollars,
except shares and per
share amounts)
Operating revenues................... $ 180,939 $ 147,749
Gas purchase costs................... 106,602 77,634
---------- ----------
Operating margin..................... 74,337 70,115
Operating expenses:
Operating, maintenance and general. 27,761 30,049
Taxes, other than on income........ 13,739 12,106
Depreciation and amortization...... 8,575 8,109
---------- ----------
Total operating expenses......... 50,075 50,264
---------- ----------
Net operating revenues........... 24,262 19,851
---------- ----------
Other income (expenses):
Interest on long-term debt......... (8,729) (9,367)
Other interest..................... (436) (959)
Dividends on preferred securities
of subsidiary trust.............. (2,370) --
Other, net......................... 949 410
---------- ----------
Total other expenses, net........ (10,586) (9,916)
---------- ----------
Earnings before income taxes..... 13,676 9,935
Federal and state income taxes....... 4,930 3,377
---------- ----------
Net earnings available for
common stock....................... $ 8,746 $ 6,558
Earnings per common share:
Primary............................ $ .72 $ .55
========== ==========
Fully diluted...................... $ .70 $ .53
========== ==========
Weighted average shares outstanding:
Primary............................ 12,120,704 12,027,716
========== ==========
Fully diluted........................ 12,547,513 12,310,560
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Six Months Ended
December 31,
-----------------------
1995 1994
----------- -----------
(thousands of dollars,
except shares and per
share amounts)
Operating revenues...................... $ 251,166 $ 217,054
Gas purchase costs...................... 134,431 106,459
---------- ----------
Operating margin...................... 116,735 110,595
Operating expenses:
Operating, maintenance and general.... 53,476 56,469
Taxes, other than on income........... 20,299 18,852
Depreciation and amortization......... 17,117 16,065
---------- ----------
Total operating expenses............ 90,892 91,386
---------- ----------
Net operating revenues.............. 25,843 19,209
---------- ----------
Other income (expenses):
Interest on long-term debt............ (17,554) (18,735)
Other interest........................ (749) (1,494)
Dividends on preferred securities of
subsidiary trust.................... (4,740) --
Other, net............................ 2,370 1,631
---------- ----------
Total other expenses, net........... (20,673) (18,598)
Earnings before income taxes........ 5,170 611
Federal and state income taxes.......... 2,022 221
---------- ----------
Net earnings available for common stock. $ 3,148 $ 390
========== ==========
Earnings per common share:
Primary............................... $ .26 $ .03
========== ==========
Fully diluted......................... $ .25 $ .03
========== ==========
Weighted average shares outstanding:
Primary............................... 12,107,537 12,024,593
========== ==========
Fully diluted......................... 12,461,328 12,310,092
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Twelve Months Ended
December 31,
-----------------------
1995 1994
----------- -----------
(thousands of dollars,
except shares and per
share amounts)
Operating revenues...................... $ 514,095 $ 486,306
Gas purchase costs...................... 269,811 260,732
---------- ----------
Operating margin...................... 244,284 225,574
Operating expenses:
Operating, maintenance and general.... 99,378 109,501
Taxes, other than on income........... 40,730 41,824
Depreciation and amortization......... 33,135 30,224
---------- ----------
Total operating expenses............ 173,243 181,549
---------- ----------
Net operating revenues.............. 71,041 44,025
---------- ----------
Other income (expenses):
Interest on long-term debt............ (36,268) (36,571)
Other interest........................ (1,689) (1,846)
Dividends on preferred securities of
subsidiary trust.................... (5,899) --
Other, net............................ 4,417 3,151
---------- ----------
Total other expenses, net........... (39,439) (35,266)
---------- ----------
Earnings before income taxes........ 31,602 8,759
Federal and state income taxes.......... 12,775 3,480
Net earnings available for common stock. $ 18,827 $ 5,279
========== ==========
Earnings per common share:
Primary............................... $ 1.56 $ .44
========== ==========
Fully diluted......................... $ 1.52 $ .43
========== ==========
Weighted average shares outstanding:
Primary............................... 12,094,150 12,017,422
========== ==========
Fully diluted......................... 12,402,366 12,324,525
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, June 30,
-----------------------
1995 1994 1995
----------- ----------- -----------
(unaudited)
(thousands of dollars)
Property, plant and
equipment:
Plant in service...... $ 905,310 $ 845,882 $ 882,769
Construction work in
progress............ 16,833 21,426 14,670
---------- ---------- ----------
922,143 867,308 897,439
Less accumulated
depreciation and
amortization........ (315,413) (287,960) (303,327)
---------- ---------- ----------
606,730 579,348 594,112
Additional purchase
cost assigned to
utility plant, net.. 152,359 165,983 154,534
---------- ---------- ----------
Net property, plant
and equipment....... 759,089 745,331 748,646
---------- ---------- ----------
Current assets:
Cash and cash equiva-
lents................. 820 -- 39,015
Short-term investments.. -- -- 19,582
Accounts receivable,
billed and unbilled... 110,045 85,391 35,465
Inventories, principally
stored gas............ 24,658 38,990 23,561
Deferred gas purchase
costs due from custo-
mers.................. 11,369 -- 7,641
Prepayments and other... 1,273 2,349 1,349
---------- ---------- ----------
Total current assets.. 148,165 126,730 126,613
---------- ---------- ----------
Deferred charges.......... 117,198 77,973 114,167
Real estate............... 10,495 10,866 10,742
Other..................... 2,754 1,820 2,334
---------- ---------- ----------
Total................... $1,037,701 $ 962,720 $1,002,502
========== ========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
STOCKHOLDERS' EQUITY AND LIABILITIES
December 31, June 30,
-----------------------
1995 1994 1995
----------- ----------- -----------
(unaudited)
(thousands of dollars)
Common stockholders' equity:
Common stock, $1 par
value; authorized
50,000,000 shares;
issued 12,212,184
shares.................. $ 12,212 $ 11,509 $ 11,570
Premium on capital stock.. 210,004 198,355 198,819
Less treasury stock,
at cost................. (794) (794) (794)
Retained earnings......... 7,940 390 16,069
---------- ---------- ----------
Total common stockholders'
equity.................. 229,362 209,460 225,664
Company-obligated manda-
torily redeemable pre-
ferred 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.............. 442,161 478,722 462,503
---------- ---------- ----------
Total capitalization...... 771,523 688,182 788,167
Current liabilities:
Long-term debt due within
one year................ 782 956 770
Notes payable............. 13,000 44,000 --
Accounts payable.......... 46,644 48,712 28,784
Federal, state and local
taxes................... 17,947 10,757 6,310
Accrued interest.......... 14,177 15,566 15,194
Customer deposits......... 15,333 13,938 14,166
Deferred gas purchase
costs due to customers.. -- 23,125 --
Other..................... 18,500 15,846 13,621
---------- ---------- ----------
Total current
liabilities........... 126,383 172,900 78,845
---------- ---------- ----------
Deferred credits and
other liabilities......... 102,422 72,258 99,434
Accumulated deferred
income taxes.............. 37,373 29,380 36,056
Commitments and con-
tingencies................ -- -- --
---------- ---------- ----------
Total..................... $1,037,701 $ 962,720 $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
$1 Par Capital Stock, Retained
Value Stock at Cost Earnings 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...... -- -- -- 3,148 3,148
Stock dividend.... 576 10,701 -- (11,277) --
Exercise of stock
options......... 66 484 -- -- 550
------- -------- ------- ------- --------
Balance December 31,
1995.............. $12,212 $210,004 $ (794) $ 7,940 $229,362
======= ======== ======= ======= ========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended
December 31,
--------------------
1995 1994
--------- ----------
(thousands of
dollars)
Net cash flow from operating activities... $ 1,143 $ 15,797
-------- ---------
Cash flow from (used in) investing
activities:
Additions to property, plant and
equipment........................... (14,652) (22,316)
Other, net............................ 1,080 378
-------- ---------
Net cash flows used in investing
activities........................ (13,572) (21,938)
-------- ---------
Cash flow from (used in) financing
activities:
Net borrowings under revolving
credit facility..................... 13,000 2,600
Increase (decrease) in cash over-
drafts.............................. (144) 1,725
Other, net............................ 393 (110)
-------- ---------
Net cash flows from financing
activities........................ 13,249 4,215
-------- ---------
Increase (decrease) in cash and cash
equivalents............................. 820 (1,926)
Cash and cash equivalents at beginning
of period............................... -- 1,926
-------- ---------
Cash and cash equivalents at end of
period.................................. $ 820 $ --
-------- ---------
Supplemental disclosures of cash
flow information:
Cash paid during the period for:
Interest............................ $ 816 $ 733
======== =========
Income taxes (refunded)............. $ 200 $ (22)
======== =========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Six Months Ended
December 31,
--------------------
1995 1994
--------- ---------
(thousands of
dollars)
Net cash flow used in operating activities.. $(25,168) $(12,547)
-------- --------
Cash flow from (used in) investing
activities:
Additions to property, plant and
equipment............................. (28,712) (36,605)
Acquisition of operations, net of cash
received.............................. -- (1,072)
Decrease in short-term investments, net. 19,582 --
Other, net.............................. 2,359 (1,096)
-------- --------
Net cash flows used in investing
activities.......................... (6,771) (38,773)
-------- --------
Cash flow from (used in) financing
activities:
Net borrowings under revolving credit
facility.............................. 13,000 44,000
Repayment of debt....................... (19,806) (381)
Increase in cash overdrafts............. -- 1,725
Other, net.............................. 550 95
-------- --------
Net cash flows (used in) from
financing activities................ (6,256) 45,439
-------- --------
Decrease in cash and cash equivalents....... (38,195) (5,881)
Cash and cash equivalents at beginning
of period................................. 39,015 5,881
-------- --------
Cash and cash equivalents at end of period.. $ 820 $ --
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest.............................. $ 18,373 $ 19,231
======== ========
Income taxes (refunded)............... $ (5,188) $ (18)
======== ========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
December 31,
---------------------
1995 1994
---------- ----------
(thousands of dollars)
Net cash flow from operating activities.. $ 29,021 $ 88,630
--------- ---------
Cash flow from (used in) investing
activities:
Additions to property, plant and
equipment.......................... (59,549) (64,738)
Acquisition of operations, net of
cash received...................... -- (406,364)
Collection of note receivable........ -- 6,000
Other, net........................... 2,435 (881)
--------- ---------
Net cash flows used in investing
activities....................... (57,114) (465,983)
--------- ---------
Cash flow from (used in) financing
activities:
Net borrowings (payments) under
revolving credit facility.......... (31,000) 23,900
Repayment of debt.................... (35,637) (107,227)
Issuance of debt..................... -- 475,000
Premium on early extinguishment
of debt............................ -- (13,715)
Debt issuance costs.................. -- (5,439)
Proceeds from issuance of preferred
securities of subsidiary trust..... 100,000 --
Issuance cost of preferred
securities of subsidiary trust..... (3,799) --
Increase in cash overdrafts.......... -- 1,725
Other, net........................... (651) 191
--------- ---------
Net cash flows from financing
activities....................... 28,913 374,435
--------- ---------
Increase (decrease) in cash and cash
equivalents............................ 820 (2,918)
Cash and cash equivalents at beginning
of period.............................. -- 2,918
--------- ---------
Cash and cash equivalents at end of
period................................. $ 820 $ --
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest........................... $ 38,373 $ 24,034
========= =========
Income taxes (refunded)............ $ (2,620) $ 367
========= =========
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 presen-
tation 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.
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.
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. Thus the Company's consolidated results of operations
for the twelve-month period ended December 31, 1994, which exclude
Missouri Gas Energy's operations during the month of January 1994,
are not indicative of results that would necessarily be achieved
for a full year and thus comparability of the twelve-month periods
ended December 31, 1995 and 1994 is impacted. Additionally,
Missouri Gas Energy's rate structure collects a greater percentage
of its operating margin in the winter heating season of which
January historically contributes approximately 17% of the annual
operating margin to the Missouri operations.
Under the Company's cash management system, checks issued but not
presented to banks frequently result in overdraft balances for
accounting purposes and are classified in accounts payable in the
consolidated balance sheet.
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 subsequent arbitra-
tion, was approximately $401,600,000. 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 statements of con-
solidated operations and cash flows 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 approximately $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 purchase
agreement to sell certain gas distribution operations of the Com-
pany in the Texas and Oklahoma Panhandles and to sell Western Gas
Interstate Company ("WGI"), a wholly-owned subsidiary of the Com-
pany, 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 Commission ("FERC") and
the Oklahoma Corporation Commission and must be reported to the
Railroad Commission of Texas.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 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% Sub-
ordinated Deferrable Interest Notes, due 2025 (the "Subordinated
Notes"). The sole assets of the Subsidiary Trust are and will be
the Subordinated Notes. The interest and other payment dates on
the Subordinated Notes correspond to the distribution and other
payment dates on the Preferred Securities and the Common Securi-
ties. Under certain circumstances, the Subordinated Notes may be
distributed 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 Company on
or after May 17, 2000, at a redemption price of $25 per
Subordinated Note plus accrued and unpaid interest. The Preferred
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 obligations under the Sub-
ordinated Notes and related agreements, taken together, constitute
a full and unconditional guarantee by Southern Union of payments
due on the Preferred Securities. As of December 31, 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:
December 31, 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................................ 1,743 2,073
--------- --------
Total debt........................... 442,943 463,273
Less current portion............... 782 770
--------- --------
Total long-term debt............. $ 442,161 $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 proceeds 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
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
STOCK DIVIDEND
On November 27, 1995, Southern Union distributed its annual 5% common
stock dividend to stockholders of record on November 15, 1995. A
portion of the 5% stock dividend was characterized as a distribution
of capital due to the level of the Company's retained earnings avail-
able for distribution as of the declaration date. The 5% stock
dividend is consistent with the Board of Directors' decision in
February 1994 to commence regular stock dividends of approximately
5% annually. 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.
UTILITY REGULATION AND RATES
Pursuant to a 1989 Missouri Public Service Commission ("MPSC")
order, Missouri Gas Energy is engaged in a major gas safety program
in its service territories. This program includes replacement of
company- and customer-owned gas service and yard lines, the move-
ment 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 associated 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 $1,780,000 and $3,364,000 for the three- and six-
month periods, respectively, ended December 31, 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 previously unrecovered
deferred gas costs of approximately $27,600,000. 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 credit, respectively,
on the balance sheet as of December 31, 1995 and June 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
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. 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 financial
position, results of operations or cash flows.
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. At the
present time and based upon information available to management,
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 Company's claims
for damages against Western Resources for fraudulent misrepresenta-
tion, breach of contract, breach of covenant and other grounds
arising out of certain gas supply and transportation 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 por-
tion 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 borrowings 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 committed 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 December 31, 1995 was approxi-
mately $7,500,000.
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, industrial,
agricultural and other customers in communities throughout Texas,
western Missouri and the Oklahoma panhandle. The Company's princi-
pal 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 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 Com-
pany's business is affected by seasonal weather impacts, competi-
tive 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
December 31, 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 December 31, 1994 are not indicative of
results that would necessarily be achieved for a full year. For
these reasons, the results of operations and cash flows of the
Company for the periods subsequent to the Missouri Acquisition are
not comparable to those periods prior to the acquisition nor are
certain 1995 results of operations and cash flows comparable with
previous periods.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1995 and 1994
- ---------------------------------------------
The Company recorded net earnings available for common stock of
$8,746,000 for the three-month period ended December 31, 1995 com-
pared with net earnings of $6,558,000 for the same period in 1994.
Earnings per share, based on weighted average shares outstanding
during the period, were $.72 in 1995 compared with earnings per
share of $.55 in 1994.
Operating revenues were $180,939,000 for the three-month period
ended December 31, 1995, an increase of 22%, compared with
operating revenues of $147,749,000 in 1994. Gas purchase costs for
the three-month period ended December 31, 1995 were $106,602,000,
an increase of 37%, compared with $77,634,000 in 1994. The Com-
pany'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 both operating revenues and gas purchase
costs between periods was primarily the result of an 18% increase
in gas sales volume to 36,365 MMcf in 1995 from 30,804 MMcf in
1994. The increase in sales volume was due to improved sales
results in nontraditional markets and colder weather in the
three-month period ended December 31, 1995. Weather in Missouri,
which includes the city of Kansas City, Missouri, was 101% of
normal for the three-month period ended December 31, 1995, compared
with 81% of normal in 1994. The Texas and Oklahoma service terri-
tories, which include the Texas cities of Austin and El Paso,
experienced weather that was only 92% of normal in 1995, compared
with 79% of normal in 1994. Operating revenues and gas purchase
costs were also affected by an increase in the average cost of
gas from $2.52 per Mcf in 1994 to $2.93 per Mcf in 1995. The
increase in the average cost of gas primarily is the result of
increases in average spot market gas prices throughout the
company's distribution system as a result of seasonal impacts on
demands for natural gas and the ensuing competitive 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 December 31, 1995 was $74,337,000
compared to $70,115,000 in 1994. The increase in operating margin
is the result of increased gas sales volumes, discussed above.
Operating expenses, which include operating, maintenance and
general expenses, taxes other than on income, and depreciation and
amortization, were $50,075,000 for the three-month period ended
December 31, 1995, a decrease of $189,000, compared with
$50,264,000 in 1994. The decrease is primarily a result of
decreases in operating, maintenance and general expenses resulting
from a decrease in payroll and related benefit costs due to a
reduction in employees and other cost-cutting measures. Off-
setting this decrease was a 22% increase in revenue-related taxes
as a result of increased operating revenues, previously discussed,
and a $466,000 increase in depreciation and amortization due to
significant software additions in late 1994.
Dividends on preferred securities of subsidiary trust were
$2,370,000 for the three-month period ended December 31, 1995,
compared with nil in 1994. The dividends on preferred securities
of subsidiary trust for the three-month period ended December 31,
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 Sub-
sidiary Trust" in the Notes to the Consolidated Financial State-
ments for the quarter ended December 31, 1995.
Interest expense was $9,165,000 for the three-month period ended
December 31, 1995, a decrease of 11%, compared to $10,326,000 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 Preferred
Securities, discussed above. In addition, the net proceeds from
the Preferred 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
December 31, 1995 as compared to the same period in 1994. See
"Capitalization" in the Notes to the Consolidated Financial
Statements for the quarter ended December 31, 1995.
Other income for the three-month period ended December 31, 1995 was
$949,000, compared with $410,000 in 1994. Other income for the
three-month period ended December 31, 1995 consists of approxi-
mately $1,258,000 related to the deferral of interest expense
associated with the Missouri Gas Energy Safety Program and
approximately $345,000 of net rental income from Lavaca Realty
Company ("Lavaca Realty"), the Company's real estate subsidiary,
which was partially offset by estimated closing and liquidation
costs of approximately $500,000 in connection with the closing
of the Natural Gas Vehicle Technology Centers, L.L.P. (the
"Tech Center"). The Tech Center is a joint venture between
Econofuel Company ("Econofuel"),a wholly-owned subsidiary of the
Company, and Natural Gas Development Company, Inc. of California.
Other income for 1994 included net rental income from Lavaca Realty
of approximately $341,000, approximately $616,000 related to the
deferral of interest expense associated with the Missouri Gas
Energy Safety Program and approximately $155,000 from gas appli-
ance merchandising. This was partially offset by a $750,000
write-down to estimated fair market value of certain Lavaca
Realty real estate held for sale.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three-month period ended December 31, 1995, federal and
state income taxes increased $1,553,000, or 46%, over the same
period in 1994 due primarily to an increase in pre-tax earnings
as discussed above. The Company's consolidated federal and state
effective income tax rate was 36% for the three months ended
December 31, 1995 compared with 34% in 1994.
Six Months Ended December 31, 1995 and 1994
- -------------------------------------------
The Company recorded net earnings available for common stock of
$3,148,000 for the six-month period ended December 31, 1995 com-
pared with net earnings of $390,000 for the six-month period ended
December 31, 1994. Earnings per share, based on weighted average
shares outstanding during the period, were $.26 in 1995 compared
with earnings per share of $.03 in 1994.
Operating revenues were $251,166,000 for the six-month period ended
December 31, 1995, an increase of 16%, compared with operating
revenues of $217,054,000 in 1994. Gas purchase costs for the six-
month period ended December 31, 1995 were $134,431,000, an
increase of 26%, compared with $106,459,000 in 1994. Both
operating revenues and gas purchase costs increased in the six-
month period ended December 31, 1995 as a result of a 15% increase
in gas sales volume from 42,449 MMcf in 1994 to 48,788 MMcf in 1995
and an increase in the average cost of gas to $2.76 per Mcf in 1995
from $2.51 per Mcf in 1994. The increase in volumes is principally
due to growth in pipeline and marketing sales, increases in the
residential customer base, improved sales results in nontraditional
markets and cooler weather experienced during the six-month period
ended December 31, 1995 compared with 1994. Weather for the Texas
and Oklahoma territories for the six-month period ended
December 31, 1995 was 94% of normal compared to 79% of normal
weather in 1994. Missouri Gas Energy's service territories
experienced 103% of normal weather for the six months ended
December 31, 1995 compared to only 82% of normal weather in 1994.
Operating margin for the six-month period ended December 31, 1995
was $116,735,000, compared with $110,595,000 in 1994. The
increase in operating margin is the result of increased gas sales
volumes due principally to colder weather experienced throughout
the company's service territories for the six-month period ended
December 31, 1995 compared with 1994, discussed above.
Operating expenses, which include operating, maintenance and
general expenses, taxes other than on income, and depreciation and
amortization, were $90,892,000 for the six-month period ended
December 31, 1995, a decrease of $494,000, compared with
$91,386,000 in 1994. The decrease is primarily a result of
decreases in operating, maintenance and general expenses resulting
from a decrease in payroll and related benefits due to a reduction
in employees and other cost-cutting measures. Offsetting this
decrease was an 15% increase in revenue-related taxes as a result
of increased operating revenues, previously discussed, and a
$1,052,000 increase in depreciation and amortization due to
significant software additions in late 1994.
Interest expense was $18,303,000 for the six-month period ended
December 31, 1995, a decrease of 10%, compared with $20,229,000 in
1994. The decrease in interest expense is due to the repurchase of
$35,000,000 of 7.60% Senior Notes in July, 1995 and reduced short-
term borrowings on the company's revolving credit facility during
the six-month period ended December 31, 1995 as compared to the
same period in 1994, previously discussed. See "Capitalization"
in the Notes to the Consolidated Financial Statements for the
quarter ended December 31, 1995.
Dividends on preferred securities of subsidiary trust were
$4,740,000 for the six-month period ended December 31, 1995, com-
pared with nil in 1994, previously discussed. See "Preferred
Securities of Subsidiary Trust" in the Notes to the Consolidated
Financial Statements for the quarter ended December 31, 1995.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Other income for the six-month period ended December 31, 1995 was
$2,370,000 compared with $1,631,000 in 1994. Other income for the
six-month period ended December 31, 1995 included approximately
$2,277,000 related to the deferral of interest expense associated
with the Missouri Gas Energy Safety Program and net rental income
from Lavaca Realty of approximately $690,000. This was partially
offset by estimated costs of $500,000 to close Econofuel's Tech
Center, previously discussed. Other income for the six-month
period ended December 31, 1994 included net rental income from
Lavaca Realty of approximately $667,000; approximately $976,000
related to the deferral of interest expense associated with the
Missouri Gas Energy Safety Program; approximately $249,000 from
gas appliance merchandising; and investment interest and
interest on notes receivable of approximately $195,000. This
was partially offset by approximately $750,000 for the write-
down of certain real estate, as discussed above.
For the six-month period ended December 31, 1995, federal and state
income taxes increased $1,801,000 over the same period in 1994 due
primarily to improved pre-tax earnings as discussed above. The
Company's consolidated federal and state effective income tax rate
was 39% for the six months ended December 31, 1995 compared with
36% in 1994.
Twelve Months Ended December 31, 1995 and 1994
- ----------------------------------------------
The Company recorded net earnings available for common stock of
$18,827,000 for the twelve-month period ended December 31, 1995
compared with net earnings of $5,279,000 in 1994. Earnings per
share, based on weighted average shares outstanding during the
period, were $1.56 in 1995 compared with earnings per share
of $.44 in 1994. 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 December 31, 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.
Operating revenues were $514,095,000 for the twelve-month period
ended December 31, 1995, an increase of 6%, compared with operating
revenues of $486,306,000 in 1994. Gas purchase costs for the
twelve-month period ended December 31, 1995 were $269,811,000,
an increase of 3%, compared with gas purchase costs of $260,732,000
in 1994. Operating revenues increased during the twelve-month
period ended December 31, 1995 as a result of an 11% increase in
gas sales volume from 99,815 MMcf in 1994 to 110,525 MMcf in 1995.
The increase in volumes is principally due to a 5% increase in the
average annual customer base to approximately 965,000 customers for
the twelve months ended December 31, 1995 compared with an average
annual customer base of approximately 915,000 in 1994 as a result
of the Missouri Acquisition on January 31, 1994. Gas purchase
costs were affected by the increase in sales volume but was
partially offset by a decrease in the average cost of gas to $2.44
per Mcf in 1995 from $2.61 per Mcf in 1994 as a result of spot
market prices. Operating revenues and gas purchase costs were
also slightly impacted by colder weather conditions in late
calendar year 1995. Weather for the Texas and Oklahoma opera-
tions for the twelve-month period ended December 31, 1995 was 88%
of normal compared with 84% of normal weather in 1994. Missouri
Gas Energy's service territories experienced 99% of normal weather
for the twelve-month period ended December 31, 1995 compared with
87% of normal weather in 1994. Missouri Gas Energy contributed
operating revenues and gas purchase costs of $305,980,000 and
$173,183,000, respectively for the twelve-month period ended
December 31, 1995 compared with $261,342,000 and $148,661,000,
respectively, in 1994. The remaining operations of the Company
were responsible for a decrease in both operating revenue of
$16,849,000 and gas purchase costs of $15,443,000, primarily
due to a reduction in volumes resulting from the warmer than
normal weather in early calendar year 1995 as compared with 1994
and a decrease in the average cost per Mcf of gas, both
previously discussed.
Operating margin for the twelve-month period ended December 31,
1995 was $244,284,000 compared with $225,574,000 in 1994. The
increase in operating margin resulted primarily from the Missouri
Acquisition which contributed approximately $20,116,000 to the
overall increase in operating margin. In addition, effective
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 December 31, 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 $173,243,000 for the twelve-month period ended
December 31, 1995, a decrease of 5%, compared with operating
expenses of $181,549,000 in 1994. The decrease in these expenses
is principally due to the overall decrease in operating expenses
attributable to operating efficiencies achieved since the Missouri
Acquisition of approximately $3,853,000. The remaining operations
of the Company were responsible for a decrease in operating
expenses of approximately $4,453,000 as a result of ongoing
efforts to reduce costs and improve efficiencies.
Interest expense on long-term debt was $36,268,000 for the twelve-
month period ended December 31, 1995, a decrease of $303,000,
compared with $36,571,000 in 1994. The decrease in interest
expense is the result of the issuance of $100,000,000 of
Preferred Securities on May 17, 1995, which was used to repur-
chase $35,000,000 of outstanding 7.60% Senior Notes during
June and July 1995. Additionally, the proceeds from the 7.60%
Senior Notes issued on January 31, 1994 were used to retire
$105,000,000 in various higher interest debentures and notes.
See "Capitalization" in the Notes to the Consolidated Financial
Statements for the quarter ended December 31, 1995 included
herein.
Dividends on preferred securities of subsidiary trust were
$5,899,000 for the twelve-month period ended December 31, 1995,
compared with nil in 1994, previously discussed. See "Preferred
Securities of Subsidiary Trust" in the Notes to the Consolidated
Financial Statements for the quarter ended December 31, 1995.
Other income for the twelve-month period ended December 31, 1995
was $4,417,000 compared with $3,151,000 in 1994. Other income for
the twelve-month period ended December 31, 1995 included approxi-
mately $3,920,000 related to the deferral of interest expense
associated with the Missouri Gas Energy Safety Program and net
rental income from Lavaca Realty of approximately $1,425,000.
This was partially offset by estimated costs of $500,000 to close
Econofuel's Tech Center, previously discussed. Other income for
the twelve-month period ended December 31, 1994 included net
rental income from Lavaca Realty of approximately $1,262,000;
approximately $1,253,000 related to the deferral of interest
expense associated with the Missouri Gas Energy Safety Program;
investment interest and interest on notes receivable of
approximately $732,000; and approximately $403,000 from gas
appliance merchandising. This was partially offset by other
expense of $750,000 to record the write-down of certain real
estate, discussed above.
For the twelve-month period ended December 31, 1995, federal and
state income taxes increased $9,295,000 over the same period in
1994 due primarily to improved pre-tax earnings as discussed
above. The Company's consolidated federal and state effective
income tax rate was 40% for both the twelve-month periods ended
December 31, 1995 and 1994.
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 December 31, 1995 and 1994:
Three Months Twelve Months
Ended December 31, Ended December 31,
1995 1994 1995(a) 1994(a)
-------- -------- -------- --------
Average number of gas
sales customers served:
Residential........... 872,891 866,797 871,261 828,839
Commercial............ 88,457 87,311 89,434 82,542
Industrial and
irrigation.......... 703 637 705 756
Public authorities
and other........... 2,765 2,796 2,791 2,695
Pipeline and
marketing........... 539 387 513 409
-------- -------- -------- --------
Total average
customers served.. 965,355 957,928 964,704 915,241
======== ======== ======== ========
Gas sales in millions of
cubic feet (MMcf)
Residential........... 16,794 14,820 64,901 56,729
Commercial............ 7,579 6,648 29,695 25,947
Industrial and
irrigation.......... 598 611 2,292 2,077
Public authorities
and other........... 605 725 3,147 2,740
Pipeline and
marketing........... 3,066 1,809 9,478 7,592
-------- -------- -------- --------
Gas sales billed.... 28,642 24,613 109,513 95,085
Net change in
unbilled gas sales.. 7,723 6,191 1,012 4,730
-------- -------- -------- --------
Total gas sales..... 36,365 30,804 110,525 99,815
======== ======== ======== ========
Gas sales revenues
(thousands of dollars):
Residential........... $ 91,958 $ 72,820 $325,228 $305,910
Commercial............ 36,128 27,845 127,005 118,381
Industrial and
irrigation.......... 2,286 1,813 8,752 8,283
Public authorities
and other........... 2,046 2,305 7,639 10,031
Pipeline and
marketing........... 6,470 3,952 19,365 17,636
-------- -------- -------- --------
Gas revenues billed. 138,888 108,735 487,989 460,241
Net change in
unbilled gas sales
revenues............ 34,272 27,634 7,129 17,968
-------- -------- -------- --------
Total gas
sales revenues.. $173,160 $136,369 $495,118 $478,209
======== ======== ======== ========
Gas sales margin
(thousands of dollars).. $ 66,558 $ 58,735 $225,307 $217,477
======== ======== ======== ========
Gas sales revenue per
thousand cubic feet
(Mcf) billed:
Residential........... $ 5.476 $ 4.914 $ 5.011 $ 5.392
Commercial............ 4.767 4.188 4.277 4.562
Industrial and
irrigation.......... 3.825 2.967 3.819 3.988
Public authorities
and other........... 3.383 3.179 2.428 3.661
Pipeline and
marketing........... 2.110 2.185 2.043 2.323
Weather effect:
Degree days:
Texas and Oklahoma
service territories. 720 606 1,792 1,663
Missouri service
territories......... 1,980 1,594 5,206 3,574
Percent of normal,
based on 30-year
average:
Texas and Oklahoma
service
territories....... 92% 79% 88% 84%
Missouri service
territories....... 101% 81% 99% 87%
Gas transported in
millions of cubic
feet (MMcf)............. 15,542 16,864 52,834 56,043
Gas transportation
revenues (thousands
of dollars)............. $ 5,268 $ 4,546 $ 15,346 $ 14,299
- --------------------
(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 seasonality
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
internally generated funds and its revolving loan and credit
facilities 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
December 31, 1995 included approximately $13,000,000 from the Com-
pany's available credit facility and $1,143,000 in cash flow from
operations. These sources provided funds for additions to
property, plant and equipment of approximately $14,652,000 and
other working capital needs of the Company.
The principal sources of funds during the six-month period ended
December 31, 1995 included approximately $13,000,000 from the Com-
pany's available credit facility and approximately $19,582,000 from
the maturity of short-term investments. These sources, along with
beginning cash balances of $39,015,000, provided funds for addi-
tions to property, plant and equipment of approximately
$28,712,000, the repayment of long-term debt of approximately
$19,806,000 and provided other seasonal working capital needs of
the Company. The beginning cash balances resulted from the May 17,
1995 Preferred Securities offering discussed below.
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 syndicated to four
additional banks. Borrowings under the Revolving Credit Facility
are available for Southern Union's working capital, 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 December 31, 1995 and February 2, 1996 was
approximately $13,000,000 and $20,800,000, respectively.
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 pur-
chase by Southern Union of all of the Subsidiary Trust's 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 issuance of the Preferred Securities
was part of a $300,000,000 shelf registration filed with the
Securities and Exchange Commission on March 29, 1995. Southern
Union may sell a combination of preferred 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.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
RESULTS OF VOTES OF SECURITY HOLDERS
Southern Union held its Annual Meeting of Stockholders on
November 7, 1995. The following matters were submitted for a vote
and approved by Southern Union's security holders: (i) the
election of four persons to serve as the Class II directors until
the 1998 Annual Meeting of Stockholders or until their successors
are duly elected and qualified and (ii) approval of a proposal to
increase employee contributions subject to Company matching from
two percent to five percent under the Southern Union Company
Supplemental Deferred Compensation Plan.
The number of votes cast in favor, abstain or withheld for each
nominee for director, and for any proposal voted on at the Annual
Meeting of Stockholders, were:
For Abstain Withheld
---------- ------- --------
Election of nominees as
Class II Directors:
Aaron I. Fleischman........ 10,609,661 -- 65,913
Kurt A. Gitter, M.D........ 10,604,264 -- 71,310
Adam M. Lindemann.......... 10,613,175 -- 62,399
George Rountree, III....... 10,609,578 -- 65,996
Proposal to increase employee
contributions subject to Com-
pany matching from two per-
cent to five percent under
the Southern Union Company
Supplemental Deferred Com-
pensation Plan............... 10,618,834 10,962 36,309
<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 February 9, 1996 By RONALD J. ENDRES
---------------- ----------------
Ronald J. Endres
Senior Vice President of
Administration, and
Chief Financial Officer
Date February 9, 1996 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 Six Months Twelve Months
Ended Ended Ended
December 31, December 31, December 31,
--------------- --------------- ---------------
1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- -------
(in thousands of dollars, except per
share amounts)
Net earnings
available for
common stock.. $ 8,746 $ 6,558 $ 3,148 $ 390 $18,827 $ 5,279
======= ======= ======= ======= ======= =======
Primary earnings
per share:
Average
shares
out-
standing.. 12,121 12,028 12,108 12,025 12,094 12,017
======= ======= ======= ======= ======= =======
Primary
earnings
per share. $ .72 $ .55 $ .26 $ .03 $ 1.56 $ .44
======= ======= ======= ======= ======= =======
Fully diluted
earnings per
share:
Average
shares
out-
standing.. 12,121 12,028 12,108 12,025 12,094 12,017
Stock
options
issued or
granted... 427 283 353 285 308 308
------- ------- ------- ------- ------- -------
Average
shares
out-
standing.. 12,548 12,311 12,461 12,310 12,402 12,325
======= ======= ======= ======= ======= =======
Fully
diluted
earnings
per share. $ .70 $ .53 $ .25 $ .03 $ 1.52 $ .43
======= ======= ======= ======= ======= =======
- ------------------
Note: All periods have been adjusted for each of the 5% stock
dividends distributed on November 27, 1995 and 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-30-1995
<PERIOD-END> DEC-31-1995
<PERIOD-TYPE> 6-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $ 759,089,000
<OTHER-PROPERTY-AND-INVEST> $ 10,495,000
<TOTAL-CURRENT-ASSETS> $ 148,165,000
<TOTAL-DEFERRED-CHARGES> $ 117,198,000
<OTHER-ASSETS> $ 2,754,000
<TOTAL-ASSETS> $1,037,701,000
<COMMON> $ 12,212,000
<CAPITAL-SURPLUS-PAID-IN> $ 210,004,000
<RETAINED-EARNINGS> $ 7,940,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> $ 229,362,000
$ 0
$ 100,000,000
<LONG-TERM-DEBT-NET> $ 442,161,000
<SHORT-TERM-NOTES> $ 13,000,000
<LONG-TERM-NOTES-PAYABLE> $ 0
<COMMERCIAL-PAPER-OBLIGATIONS> $ 0
<LONG-TERM-DEBT-CURRENT-PORT> $ 782,000
$ 0
<CAPITAL-LEASE-OBLIGATIONS> $ 0
<LEASES-CURRENT> $ 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $ 251,602,000
<TOT-CAPITALIZATION-AND-LIAB> $1,037,701,000
<GROSS-OPERATING-REVENUE> $ 251,166,000
<INCOME-TAX-EXPENSE> $ 2,022,000
<OTHER-OPERATING-EXPENSES> $ 53,476,000
<TOTAL-OPERATING-EXPENSES> $ 90,892,000
<OPERATING-INCOME-LOSS> $ 25,843,000
<OTHER-INCOME-NET> $ 2,370,000
<INCOME-BEFORE-INTEREST-EXPEN> $ 21,451,000
<TOTAL-INTEREST-EXPENSE> $ 18,303,000
<NET-INCOME> $ 3,148,000
$ 0
<EARNINGS-AVAILABLE-FOR-COMM> $ 3,148,000
<COMMON-STOCK-DIVIDENDS> $ 0
<TOTAL-INTEREST-ON-BONDS> $ 0
<CASH-FLOW-OPERATIONS> $ (25,168,000)
<EPS-PRIMARY> $ .26
<EPS-DILUTED> $ .25
</TABLE>
