<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
----------
FORM 10-Q
For the quarterly period ended
March 31, 1996
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 New York Stock Exchange
value $1 per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of the registrant's Common Stock outstanding
on April 30, 1996 was 16,219,918.
=================================================================
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
FORM 10-Q
March 31, 1996
Index
PART I. FINANCIAL INFORMATION Page(s)
-------
Item 1. Financial Statements
Statements of consolidated operations -
three, nine and twelve months ended
March 31, 1996 and 1995
Consolidated balance sheet - March 31,
1996 and 1995 and June 30, 1995
Statement of common stockholders'
equity - nine months ended March 31,
1996 and twelve months ended June 30,
1995
Statements of consolidated cash flows -
three, nine and twelve months ended
March 31, 1996 and 1995
Notes to consolidated financial statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(See "CONTINGENCIES" under Notes to
Consolidated Financial Statements)
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 11 -- Computation of primary
and fully diluted earnings per share
(b) Exhibit 27 -- Financial Data Schedule
(c) Reports on Form 8-K -- None
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Three Months Ended
March 31,
----------------------
1996 1995
---------- ----------
(thousands of dollars,
except shares and per
share amounts)
Operating revenues.................... $ 275,028 $ 179,626
Gas purchase costs.................... 178,454 99,749
--------- ---------
Operating margin...................... 96,574 79,877
--------- ---------
Operating expenses:
Operating, maintenance and general.. 26,064 23,408
Taxes, other than on income......... 19,378 13,258
Depreciation and amortization....... 8,003 7,944
--------- ---------
Total operating expenses.......... 53,445 44,610
--------- ---------
Net operating revenues............ 43,129 35,267
--------- ---------
Other income (expenses):
Interest on long-term debt........... (8,727) (9,365)
Other interest....................... (269) (530)
Dividends on preferred securities of
subsidiary trust................... (2,370) --
Other, net........................... 2,221 1,045
--------- ---------
Total other expenses, net.......... (9,145) (8,850)
--------- ---------
Earnings before income taxes....... 33,984 26,417
Federal and state income taxes......... 13,435 10,264
--------- ---------
Net earnings available for common
stock................................ $ 20,549 $ 16,153
========= =========
Earnings per common and common share
equivalents.......................... $ 1.22 $ .98
========= =========
Weighted average common and common
share equivalents outstanding........ 16,775,548 16,427,227
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Nine Months Ended
March 31,
-----------------------
1996 1995
---------- ----------
(thousands of dollars,
except shares and per
share amounts)
Operating revenues..................... $ 526,195 $ 396,573
Gas purchase costs..................... 312,885 206,208
--------- ---------
Operating margin..................... 213,310 190,365
--------- ---------
Operating expenses:
Operating, maintenance and general... 79,540 79,877
Taxes, other than on income.......... 39,677 32,003
Depreciation and amortization........ 25,120 24,008
--------- ---------
Total operating expenses........... 144,337 135,888
--------- ---------
Net operating revenues............. 68,973 54,477
--------- ---------
Other income (expenses):
Interest on long-term debt........... (26,282) (28,100)
Other interest....................... (1,018) (2,024)
Dividends on preferred securities of
subsidiary trust................... (7,110) --
Other, net........................... 4,591 2,675
--------- ---------
Total other expenses, net.......... (29,819) (27,449)
--------- ---------
Earnings before income taxes....... 39,154 27,028
Federal and state income taxes......... 15,457 10,486
--------- ---------
Net earnings available for common
stock................................ $ 23,697 $ 16,542
========= =========
Earnings per common and common share
equivalents.......................... $ 1.42 $ 1.01
========= =========
Weighted average common and common
share equivalents outstanding........ 16,630,497 16,412,362
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED OPERATIONS
Twelve Months Ended
March 31,
-----------------------
1996 1995
---------- ----------
(thousands of dollars,
except shares and per
share amounts)
Operating revenues..................... $ 609,604 $ 488,999
Gas purchase costs..................... 348,516 252,722
--------- ---------
Operating margin..................... 261,088 236,277
--------- ---------
Operating expenses:
Operating, maintenance and general... 102,034 109,463
Taxes, other than on income.......... 46,954 39,921
Depreciation and amortization........ 33,195 31,388
--------- ---------
Total operating expenses........... 182,183 180,772
--------- ---------
Net operating revenues............. 78,905 55,505
--------- ---------
Other income (expenses):
Interest on long-term debt........... (35,630) (37,848)
Other interest....................... (1,428) (2,123)
Dividends on preferred securities of
subsidiary trust................... (8,269) --
Other, net........................... 5,592 3,548
--------- ---------
Total other expenses, net.......... (39,735) (36,423)
--------- ---------
Earnings before income taxes....... 39,170 19,082
Federal and state income taxes......... 15,946 7,604
--------- ---------
Net earnings available for common
stock................................ $ 23,224 $ 11,478
========= =========
Earnings per common and common share
equivalents.......................... $ 1.40 $ .70
========= =========
Weighted average common and common
share equivalents outstanding........ 16,589,840 16,408,297
========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
March 31, June 30,
----------------------
1996 1995 1995
---------- ---------- ----------
(thousands of dollars)
Property, plant and
equipment:
Plant in service....... $ 916,358 $ 859,472 $ 882,769
Construction work in
progress............. 11,148 24,108 14,670
---------- ---------- ----------
927,506 883,580 897,439
Less accumulated
depreciation and
amortization......... (318,182) (297,704) (303,327)
---------- ---------- ----------
609,324 585,876 594,112
Additional purchase
cost assigned to
utility plant, net... 141,825 148,648 144,629
---------- ---------- ----------
Net property, plant
and equipment........ 751,149 734,524 738,741
---------- ---------- ----------
Current assets:
Cash and cash
equivalents............ 38,436 5,730 39,015
Short-term investments... -- -- 19,582
Accounts receivable,
billed and unbilled.... 119,661 70,830 35,465
Inventories, principally
at average cost........ 5,787 19,015 23,561
Deferred gas purchase
costs due from
customers.............. -- -- 7,641
Prepayments and other.... 685 1,616 1,349
---------- ---------- ----------
Total current assets... 164,569 97,191 126,613
---------- ---------- ----------
Deferred charges........... 114,933 110,296 114,167
Investment securities...... 10,763 -- --
Real estate................ 10,312 10,803 10,742
Other assets............... 3,574 2,540 2,334
---------- ---------- ----------
Total $1,055,300 $ 955,354 $ 992,597
========== ========== ==========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
STOCKHOLDERS' EQUITY AND LIABILITIES
March 31, June 30,
----------------------
1996 1995 1995
---------- ---------- ----------
(thousands of dollars)
Common stockholders' equity:
Common stock, $1 par
value; authorized
50,000,000 shares;
issued 16,269,778
shares at March 31,
1996.................. $ 16,270 $ 11,570 $ 11,570
Premium on common stock. 205,993 198,818 198,819
Less treasury stock,
at cost............... (794) (794) (794)
Retained earnings....... 28,489 16,542 16,069
---------- ---------- ----------
Total common stock-
holders' equity....... 249,958 226,136 225,664
---------- ---------- ----------
Company-obligated manda-
torily redeemable pre-
ferred securities of
subsidiary trust
holding solely
$103,093,000 principal
amount of 9.48% sub-
ordinated notes of
Southern Union due
2025.................... 100,000 -- 100,000
Long-term debt............ 441,054 478,062 462,503
---------- ---------- ----------
Total capitalization.... 791,012 704,198 788,167
Current liabilities:
Long-term debt due
within one year....... 601 956 770
Notes payable........... -- 18,000 --
Accounts payable........ 49,789 41,968 28,784
Federal, state and
local taxes........... 31,266 19,791 6,310
Accrued interest........ 5,981 6,323 15,194
Accrued dividends on
preferred securities
of subsidiary trust... 2,370 -- --
Customer deposits....... 15,670 14,192 14,166
Deferred gas purchase
costs due to
customers............. 16,167 15,215 --
Other................... 17,230 14,987 13,621
---------- ---------- ----------
Total current
liabilities......... 139,074 131,432 78,845
---------- ---------- ----------
Deferred credits and
other liabilities....... 86,393 89,224 89,529
Accumulated deferred
income taxes............ 38,821 30,500 36,056
Commitments and
contingencies........... -- -- --
---------- ---------- ----------
Total................... $1,055,300 $ 955,354 $ 992,597
========== ========== ==========
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 Common 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.. -- -- -- 23,697 23,697
5% stock
dividend.... 576 10,701 -- (11,277) --
Four-for-
three stock
split....... 4,054 (4,054) -- -- --
Exercise of
stock
options..... 70 527 -- -- 597
------- -------- -------- -------- --------
Balance March 31,
1996.......... $16,270 $205,993 $ (794) $ 28,489 $249,958
======= ======== ======== ======== ========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Three Months Ended
March 31,
----------------------
1996 1995
---------- ----------
(thousands of dollars)
Cash flows from operating activities:
Net earnings........................... $ 20,549 $ 16,153
Adjustments to reconcile net earnings
to net cash flows from operating
activities:
Depreciation and amortization...... 8,003 7,944
Deferred income taxes.............. 1,448 1,120
Other, net......................... 647 (2,305)
Changes in assets and liabilities:
Accounts receivable, billed and
unbilled....................... (11,328) 18,032
Accounts payable................. 3,145 (4,421)
Taxes and other liabilities...... 6,224 (1,456)
Deferred gas purchase costs...... 27,536 (7,910)
Inventories...................... 18,871 20,373
Other............................ 105 983
--------- ---------
Net cash flow from operating
activities................... 75,200 48,513
--------- ---------
Cash flow from (used in) investing
activities:
Additions to property, plant and
equipment.......................... (9,021) (13,758)
Net change in customer advances...... 605 1,168
Net change in deferred charges....... 2,658 (1,878)
Net change in deferred credits....... (6,729) (3,487)
Purchase of investment securities.... (9,300) --
Other, net........................... (1,556) 1,308
--------- ---------
Net cash flows used in investing
activities....................... (23,343) (16,647)
--------- ---------
Cash flow from (used in) financing
activities:
Net payments under revolving credit
facility........................... (13,000) (26,000)
Repayment of debt.................... (1,288) (660)
Other, net........................... 47 524
--------- ---------
Net cash flows used in financing
activities....................... (14,241) (26,136)
--------- ---------
Increase in cash and cash equivalents.... 37,616 5,730
Cash and cash equivalents at beginning
of period.............................. 820 --
--------- ---------
Cash and cash equivalents at end of
period................................. $ 38,436 $ 5,730
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest........................... $ 16,904 $ 18,974
========= =========
Income taxes....................... $ 783 $ 535
========= =========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Nine Months Ended
March 31,
---------------------
1996 1995
---------- ----------
(thousands of dollars)
Cash flows from operating activities:
Net earnings............................ $ 23,697 $ 16,542
Adjustments to reconcile net earnings
to net cash flows from operating
activities:
Depreciation and amortization....... 25,120 24,008
Deferred income taxes............... 2,765 788
Other, net.......................... 619 (2,230)
Changes in assets and liabilities:
Accounts receivable, billed and
unbilled........................ (87,379) (18,259)
Accounts payable.................. 21,005 5,252
Taxes and other liabilities....... 21,724 (1,598)
Deferred gas purchase costs....... 23,808 (56)
Inventories....................... 17,774 11,758
Other............................. 899 1,486
--------- ---------
Net cash flow from operating
activities.................... 50,032 37,691
--------- ---------
Cash flow from (used in) investing
activities:
Additions to property, plant and
equipment........................... (37,733) (50,363)
Net change in deferred charges and
deferred credits.................... (1,633) (6,743)
Purchase of investment securities..... (10,763) --
Decrease in short-term investments,
net................................. 19,582 --
Other, net............................ 433 1,686
--------- ---------
Net cash flows used in investing
activities........................ (30,114) (55,420)
--------- ---------
Cash flow from (used in) financing
activities:
Net borrowings under revolving credit
facility............................ -- 18,000
Repayment of debt..................... (21,094) (1,041)
Other, net............................ 597 619
--------- ---------
Net cash flows from (used in)
financing activities.............. (20,497) 17,578
--------- ---------
Decrease in cash and cash equivalents..... (579) (151)
Cash and cash equivalents at beginning
of period............................... 39,015 5,881
--------- ---------
Cash and cash equivalents at end of
period.................................. $ 38,436 $ 5,730
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................ $ 35,278 $ 38,205
========= =========
Income taxes (refunded)............. $ (4,405) $ 517
========= =========
See accompanying notes to the consolidated financial statements.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED CASH FLOWS
Twelve Months Ended
March 31,
---------------------
1996 1995
---------- ----------
(thousands of dollars)
Cash flows from operating activities:
Net earnings............................ $ 23,224 $ 11,478
Adjustments to reconcile net earnings
to net cash flows from operating
activities:
Depreciation and amortization....... 33,195 31,388
Deferred income taxes............... 7,886 8,664
Other, net.......................... 6,208 (1,796)
Changes in assets and liabilities:
Accounts receivable, billed and
unbilled........................ (58,069) 33,041
Accounts payable.................. 7,821 (19,734)
Taxes and other liabilities....... 15,746 (15,858)
Deferred gas purchase costs....... 952 5,449
Inventories....................... 13,228 (5,345)
Other............................. 3,792 6,679
--------- ---------
Net cash flow from operating
activities.................... 53,983 53,966
--------- ---------
Cash flow from (used in) investing
activities:
Additions to property, plant and
equipment........................... (54,812) (65,841)
Acquisition of operations, net of
cash received....................... -- (5,877)
Collection of note receivable......... -- 6,000
Net change in deferred charges and
deferred credits.................... 1,242 (6,434)
Purchase of investment securities..... (10,763) --
Other, net............................ 523 1,703
--------- ---------
Net cash flows used in investing
activities........................ (63,810) (70,449)
--------- ---------
Cash flow from (used in) financing
activities:
Net borrowings (payments) under
revolving credit facility........... (18,000) 18,000
Repayment of debt..................... (36,265) (21,346)
Proceeds from issuance of preferred
securities of subsidiary trust...... 100,000 --
Issuance cost of preferred securities
of subsidiary trust................. (3,799) --
Other, net............................ 597 252
--------- ---------
Net cash flows from (used in)
financing activities.............. 42,533 (3,094)
--------- ---------
Increase (decrease) in cash and cash
equivalents............................. 32,706 (19,577)
Cash and cash equivalents at beginning of
period.................................. 5,730 25,307
--------- ---------
Cash and cash equivalents at end of
period.................................. $ 38,436 $ 5,730
========= =========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest............................ $ 36,049 $ 39,441
========= =========
Income taxes (refunded)............. $ (2,355) $ 754
========= =========
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.
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.
The computation of both primary and fully diluted earnings per
share is based on the weighted average number of outstanding com-
mon shares during the period plus, when their effect is dilutive,
common share equivalents consisting of certain shares subject to
stock options and warrants.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" which establishes fair
value-based accounting and reporting standards for all transac-
tions in which a company acquires goods or services by issuing
its equity securities, including all arrangements under which
employees receive stock-based compensation. SFAS No. 123
encourages, but does not require, companies to adopt fair value
accounting to recognize compensation expense for grants under
stock-based compensation plans. However, companies must comply
with the fair value disclosure requirements set forth in SFAS No.
123, which is effective for fiscal years beginning after
December 15, 1995. The Company expects to adopt the reporting
standards of SFAS No. 123, which should not impact the Company's
financial statements.
INVESTMENT SECURITIES
At March 31, 1996, all securities covered by SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securi-
ties" were classified as available for sale and are intended
to be held by the Company for an indefinite period of time.
Accordingly, these securities are stated at fair value, with
unrealized gains and losses reported in a separate component
of shareholders equity. Realized gains and losses on sales
of investments, as determined on a specific identification
basis, are included in the Statement of Consolidated Opera-
tions when incurred.
As of March 31, 1996, investment securities consisted of
common stock in which cost approximated fair value. These
investment securities have subsequently declined in fair
value and as of April 30, 1996, unrealized holding losses,
net of tax benefits, amounted to approximately $1,026,000.
DIVESTITURE
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 transports
natural gas into Mexico, for approximately $14,700,000. The sale
has been approved by the Federal Energy Regulatory Commission
("FERC") and the Oklahoma Corporation Commission and was closed
on May 1, 1996.
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% Subordinated Deferrable Interest Notes, due
2025 (the "Subordinated Notes"). The sole assets of the Sub-
sidiary 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 Securities. 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 Sub-
ordinated Notes are redeemable at the option of the Company on or
after May 17, 2000,
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 dis-
tributions. Southern Union's obligations 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 March 31, 1996, 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:
March 31, June 30,
1996 1995
--------- --------
(thousands of dollars)
First mortgage bonds:
11.5% due 2000, retired in full
March 15, 1996 -- collateralized by
certain utility plant in service..... $ -- $ 1,200
Other long-term debt:
7.60% Senior Notes due 2024............ 440,000 460,000
Other.................................. 1,655 2,073
-------- --------
Total debt............................. 441,655 463,273
Less current portion................. 601 770
-------- --------
Total long-term debt............... $441,054 $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.
Subsequent to March 31, 1996, $11,000,000 of Senior Debt Securi-
ties were repurchased at $941 per $1,000 note. No material gain
or loss was recognized on this transaction.
STOCK DIVIDEND AND SPLIT
On February 13, 1996, the Board of Directors declared a four-for-
three stock split distributed in the form of a 33 % stock divi-
dend on March 11, 1996, to stockholders of record on February 23,
1996.
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 available for distribution as of the declara-
tion 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 and stock split.
<PAGE>
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 $2,211,000 and $5,575,000 for the
three- and nine-month periods ended March 31, 1996, respectively.
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.
As of the date of this filing, Missouri Gas Energy has filed a
request for a rate increase primarily consisting of the recovery
of certain capital expenditures incurred by Missouri Gas Energy
for safety improvements under the Missouri Safety 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 $23,000,000. 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 con-
solidated balance sheet as of March 31, 1996 and 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
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
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 and Western Resources entered into an Environmen-
tal 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 allo-
cation 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.
In addition to the Pine Street Canal Site and various Missouri
Gas Energy sites described above, the Company is investigating
the possibility that the Company or predecessor companies may
have been associated with Manufactured Gas Plant ("MGP") sites in
other of its past, principally in Arizona and New Mexico, and
present service areas in Texas. At the present time, the Company
is aware of certain plant sites in some of these areas and is
investigating those and certain other locations.
The municipal owner of a property adjacent to one of the Com-
pany's service locations has raised concerns over the continued
operation of that property as a park due to its former use as a
portion of a MGP site. The Texas Water Commission ("TWC"), in
cooperation with the United States Environmental Protection
Agency, conducted a site inspection and preliminary assessment of
this MGP site. Correspondence received from the TWC in 1989
concluded in part that considering the site conditions, "no
apparent problem is seen at this site" and that the site "did not
appear at the time of our inspection to pose an apparent threat
to the public or the environment." The city has now closed the
park pending the performance of a risk assessment report. Based
upon currently available information, Southern Union does not
believe the outcome of this matter will have a material adverse
effect on its financial position, results of operations or cash
flows.
While the Company's evaluation of these Texas, Arizona and New
Mexico MGP sites is in its preliminary stages, it is likely that
some compliance costs may be identified and become subject to
reasonable quantification. To the extent that such potential
costs are quantified, the Company expects to provide any appro-
priate accruals and seek recovery for such remediation costs
through all appropriate means, including insurance and regulatory
relief. Although significant charges to earnings could be
required prior to rate recovery, management does not believe that
environmental expenditures for such MGP sites will have a
material adverse effect on the Company's financial position,
results of operations or cash flows.
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 transpor-
tation 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.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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 com-
mitted to pay its applicable portion of the amount owed the
lender of the credit-facility borrowings. The Company's allo-
cable unpaid portion of the amount the trust owes the lender at
March 31, 1996 was approximately $7,100,000.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Southern Union Company is engaged in various activities in the
distribution of natural gas to residential, commercial, 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
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 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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 and 1995
Net earnings available for common stock increased 27% to
$20,549,000 for the three-month period ended March 31, 1996
compared with net earnings of $16,153,000 for the same period
in 1995. Earnings per common and common share equivalent
during the period were $1.22 in 1996 compared with $.98 in
1995.
Operating revenues were $275,028,000 for the three-month period
ended March 31, 1996, an increase of 53%, compared with operating
revenues of $179,626,000 in 1995. Gas purchase costs for the
three-month period ended March 31, 1996 were $178,454,000, an
increase of 79%, compared with $99,749,000 in 1995. 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 pur-
chase costs between periods was primarily the result of a 22%
increase in gas sales volume to 54,746 MMcf in 1996 from 44,930
MMcf in 1995. The increase in sales volume was due to colder
weather in the Company's service territories during this year's
winter season along with improved sales results in nontraditional
markets and increases in the customer base.
Weather in Missouri, which includes the city of Kansas City,
Missouri, was 106% of 30-year average temperature ("30-year
measure") for the three-month period ended March 31, 1996,
compared with 91% of the 30-year measure in 1995. The Texas
and Oklahoma service territories, which include the Texas
cities of Austin and El Paso, experienced weather that was 93%
of the 30-year measure in 1996, compared with 80% of the 30-
year measure in 1995. (Weather in El Paso was 80% of the 30-
year measure in 1996 and 70% of the 30-year measure in 1995.)
Operating revenues and gas purchase costs were also affected
by an increase in the average cost of gas from $2.22 per Mcf
in 1995 to $3.26 per Mcf in 1996. The increase in the
average cost of gas is primarily the result of increases in
average spot market gas prices throughout the company's
distribution system as a result of the increased price of
natural gas during this past winter season.
Operating margin (operating revenues less gas purchase costs) for
the three-month period ended March 31, 1996 was $96,574,000 com-
pared to $79,877,000 in 1995. 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 $53,445,000 for the three-month period
ended March 31, 1996, an increase of $8,835,000, compared with
$44,610,000 in 1995. The increase is primarily a result of a 51%
increase
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
in revenue-related taxes as a result of increased operating
revenues, previously discussed, and a $2,656,000 increase in
operating, maintenance and general expenses. The increase in
operating, maintenance and general expenses from 1995 to 1996 is
due to the timing of medical expenses incurred, severance costs
at Missouri Gas Energy and an increase in general corporate
expenses.
Dividends on preferred securities of subsidiary trust were
$2,370,000 for the three-month period ended March 31, 1996, com-
pared with nil in 1995. The dividends on preferred securities of
subsidiary trust for the three-month period ended March 31, 1996
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 quarter ended March 31, 1996.
Interest expense was $8,996,000 for the three-month period ended
March 31, 1996, a decrease of 9%, compared to $9,895,000 in 1995.
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, discussed above. In addition, the net pro-
ceeds from the Preferred Securities provided working capital for
operations for the company, allowing for less borrowings from the
Company's revolving credit facility during the three-month period
ended March 31, 1996 as compared to the same period in 1995. See
"Capitalization" in the Notes to the Consolidated Financial
Statements for the quarter ended March 31, 1996.
Other income for the three-month period ended March 31, 1996 was
$2,221,000, compared with $1,045,000 in 1995. Other income for
the three-month period ended March 31, 1996 consists of approxi-
mately $1,385,000 related to the deferral of interest expense
associated with the Missouri Gas Energy Safety Program, approxi-
mately $434,000 related to certain insurance and other claim
refunds and approximately $348,000 of net rental income from
Lavaca Realty Company ("Lavaca Realty"), the Company's real
estate subsidiary. Other income for 1995 included approximately
$740,000 related to the deferral of interest expense associated
with the Missouri Gas Energy Safety Program and net rental income
from Lavaca Realty of approximately $376,000.
For the three-month period ended March 31, 1996, federal and
state income taxes increased $3,171,000, or 31%, over the same
period in 1995 due primarily to an increase in pre-tax earnings
as discussed above. The Company's consolidated federal and state
effective income tax rate was 40% for the three months ended
March 31, 1996 compared with 39% in 1995.
The three-month period ended March 31 is generally the Company's
most profitable quarter. Because Missouri Gas Energy's rate
structure collects a greater percentage of its margin in the
winter heating season months, losses are expected during the
upcoming quarters ended June 30 and September 30, 1996.
Nine Months Ended March 31, 1996 and 1995
The Company recorded net earnings available for common stock of
$23,697,000 for the nine-month period ended March 31, 1996, an
increase of 43%, compared with net earnings of $16,542,000 for
the same in 1995. Earnings per share were $1.42 in 1996 compared
with $1.01 in 1995.
Operating revenues were $526,195,000 for the nine-month period
ended March 31, 1996, an increase of 33%, compared with operating
revenues of $396,573,000 in 1995. Gas purchase costs for the
nine-month period ended March 31, 1996 were $312,885,000, an
increase of 52%, compared with $206,208,000 in 1995. Both
operating
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
revenues and gas purchase costs increased in the nine-month
period ended March 31, 1996 as a result of an 18% increase in gas
sales volume from 87,379 MMcf in 1995 to 103,534 MMcf in 1996 and
an increase in the average cost of gas to $3.02 per Mcf in 1996
from $2.36 per Mcf in 1995. The increase in volumes is princi-
pally due to the colder weather experienced during this year's
winter heating season along with improved sales results in non-
traditional markets and increases in the customer base.
Missouri Gas Energy's service territories experienced weather
that was 105% of the 30-year measure for the nine months ended
March 31, 1996 compared to only 88% of the 30-year measure in
1995. Weather for the Texas and Oklahoma territories for the
nine-month period ended March 31, 1996 was 94% of the 30-year
measure compared to 80% of the 30-year measure in 1995. (El
Paso experienced weather that was 81% of the 30-year measure
in 1996 and 72% of the 30-year measure in 1995.) The increase
in gas costs is due to the increase in average spot market gas
prices, as discussed above.
Operating margin for the nine-month period ended March 31, 1996
was $213,310,000, an increase of 12%, compared with $190,365,000
in 1995. 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
nine-month period ended March 31, 1996 compared with 1995, dis-
cussed above.
Operating expenses, which include operating, maintenance and
general expenses, taxes other than on income, and depreciation
and amortization, were $144,337,000 for the nine-month period
ended March 31, 1996, an increase of $8,449,000, compared with
$135,888,000 in 1995. The increase is primarily a result of a
30% increase in revenue-related taxes as a result of increased
operating revenues, previously discussed, and a $1,112,000
increase in depreciation and amortization due to significant
software additions in late calendar year 1994.
Interest expense was $27,300,000 for the nine-month period ended
March 31, 1996, a decrease of 9%, compared with $30,124,000 in
1995. The decrease in interest expense is due to the repurchase
of $35,000,000 of 7.60% Senior Notes in June and July, 1995 and
reduced short-term borrowings on the company's revolving credit
facility during the nine-month period ended March 31, 1996 as
compared to the same period in 1995, previously discussed. See
"Capitalization" in the Notes to the Consolidated Financial
Statements for the quarter ended March 31, 1996.
Dividends on preferred securities of subsidiary trust were
$7,110,000 for the nine-month period ended March 31, 1996, com-
pared with nil in 1995, previously discussed. See "Preferred
Securities of Subsidiary Trust" in the Notes to the Consolidated
Financial Statements for the quarter ended March 31, 1996.
Other income for the nine-month period ended March 31, 1996 was
$4,591,000 compared with $2,675,000 in 1995. Other income for
the nine-month period ended March 31, 1996 included approximately
$3,662,000 related to the deferral of interest expense associated
with the Missouri Gas Energy Safety Program, net rental income
from Lavaca Realty of approximately $1,037,000 and approximately
$434,000 related to certain insurance and other claim refunds.
This 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 the nine-month period ended March 31, 1995 included
approximately $1,716,000 related to the deferral of interest
expense associated with the Missouri Gas Energy Safety Program;
net rental income from Lavaca Realty of approximately $1,042,000;
investment interest and interest on notes receivable of approxi-
mately $272,000 and approximately $262,000 from gas appliance
merchandising. This was partially offset by approximately
$750,000 for the write-down to estimated fair market value of
certain Lavaca Realty real estate held for sale.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the nine-month period ended March 31, 1996, federal and state
income taxes increased $4,971,000 over the same period in 1995
due to improved pre-tax earnings as discussed above. The Com-
pany's consolidated federal and state effective income tax rate
was 39% for the nine month periods ended March 31, 1996 and 1995.
Twelve Months Ended March 31, 1996 and 1995
The Company recorded net earnings available for common stock of
$23,224,000 for the twelve-month period ended March 31, 1996, an
increase of 102%, compared with net earnings of $11,478,000 in
1995. Earnings per share were $1.40 in 1996 compared with $.70
in 1995.
Operating revenues were $609,604,000 for the twelve-month period
ended March 31, 1996, an increase of 25%, compared with operating
revenues of $488,999,000 in 1995. Gas purchase costs for the
twelve-month period ended March 31, 1996 were $348,516,000, an
increase of 38%, compared with gas purchase costs of $252,722,000
in 1995. Both operating revenues and gas purchase costs
increased during the twelve-month period ended March 31, 1996 as
a result of a 17% increase in gas sales volume from 103,579 MMcf
in 1995 to 120,925 MMcf in 1996. Gas purchase costs were
affected by the increase in sales volume as well as an increase
in the average cost of gas to $2.88 per Mcf in 1996 from $2.44
per Mcf in 1995 as a result of spot market prices. Operating
revenues and gas purchase costs for the twelve-month period ended
March 31, 1996 were also impacted by colder weather conditions,
improved sales results and increases in the customer base, noted
above. Missouri Gas Energy's service territories experienced
weather that was 107% of the 30-year measure for the twelve-
month period ended March 31, 1996 compared with 88% in 1995.
Weather for the Texas and Oklahoma operations for the twelve-
month period ended March 31, 1996 was 95% of the 30-year
measure compared with 79% in 1995.
Operating margin for the twelve-month period ended March 31, 1996
was $261,088,000 compared with $236,277,000 in 1995. 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, discussed above.
Operating expenses, which include operating, maintenance and
general expenses, taxes other than on income and depreciation and
amortization, were $182,183,000 for the twelve-month period ended
March 31, 1996, an increase of $1,411,000, compared with
operating expenses of $180,772,000 in 1995. The increase is due
to a 22% increase in revenue-related taxes as a result of
increased operating revenues, previously discussed, and a
$1,807,000 increase in depreciation and amortization due to
significant software additions in late calendar year 1994.
Offsetting this increase was a decrease in operating, maintenance
and general expenses resulting from a decrease in payroll and
related benefits due to a reduction in employees as well as other
cost-cutting measures.
Interest expense was $37,058,000 for the twelve-month period
ended March 31, 1996, a decrease of 7%, compared with $39,971,000
in 1995. 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 repurchase $35,000,000 of outstanding 7.60%
Senior Notes during June and July 1995. 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.
Additionally, the Company had reduced short-term borrowings on
the revolving credit facility during the twelve-month period
ended March 31, 1996 as compared to the same period in 1995,
previously discussed. See "Capitalization" in the Notes to the
Consolidated Financial Statements for the quarter ended March 31,
1996 included herein.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Dividends on preferred securities of subsidiary trust were
$8,269,000 for the twelve-month period ended March 31, 1996,
compared with nil in 1995, previously discussed. See "Preferred
Securities of Subsidiary Trust" in the Notes to the Consolidated
Financial Statements for the quarter ended March 31, 1996.
Other income for the twelve-month period ended March 31, 1996 was
$5,592,000 compared with $3,548,000 in 1995. Other income for
the twelve-month period ended March 31,1996 primarily consisted
of approximately $4,565,000 related to the deferral of interest
expense associated with the Missouri Gas Energy Safety Program
and net rental income from Lavaca Realty of approximately
$1,398,000. 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 March 31, 1995
included approximately $1,912,000 related to the deferral of
interest expense associated with the Missouri Gas Energy Safety
Program; net rental income from Lavaca Realty of approximately
$1,371,000; investment interest and interest on notes receivable
of approximately $646,000; and approximately $305,000 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 March 31, 1996, federal and
state income taxes increased $8,342,000 over the same period in
1995 due to improved pre-tax earnings as discussed above. The
Company's consolidated federal and state effective income tax
rate was 41% for the twelve-month period ended March 31, 1996
compared with 40% in 1995.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table sets forth certain information regarding the
Company's gas utility operations for the three- and twelve-month
periods ended March 31, 1996 and 1995:
Three Months Twelve Months
Ended March 31, Ended March 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
Average number of
gas sales custo-
mers served:
Residential.... 880,604 878,493 871,788 866,525
Commercial..... 92,683 92,328 89,523 88,402
Industrial and
irrigation... 677 717 695 697
Public autho-
rities and
other........ 2,883 2,854 2,799 2,748
Pipeline and
marketing.... 423 343 533 432
--------- --------- --------- ---------
Total average
customers
served..... 977,270 974,735 965,338 958,444
========= ========= ========= =========
Gas sales in
millions of
cubic feet (MMcf)
Residential.... 35,263 31,543 68,621 62,776
Commercial..... 14,900 13,475 31,120 28,806
Industrial and
irrigation... 694 638 2,348 2,364
Public autho-
rities and
other........ 1,314 1,268 3,193 2,713
Pipeline and
marketing.... 4,126 1,766 11,838 7,670
--------- --------- --------- ---------
Gas sales
billed..... 56,297 48,690 117,120 104,329
Net change in
unbilled gas
sales........ (1,551) (3,760) 3,805 (750)
--------- --------- --------- ---------
Total gas
sales...... 54,746 44,930 120,925 103,579
========= ========= ========= =========
Gas sales revenues
(thousands of
dollars):
Residential.... $ 178,893 $ 130,853 $ 367,846 $ 304,488
Commercial..... 74,736 52,814 146,333 118,175
Industrial and
irrigation... 3,891 2,412 10,185 8,610
Public autho-
rities and
other........ 4,708 4,008 8,203 9,079
Pipeline and
marketing.... 9,241 3,613 24,993 17,298
--------- --------- --------- ---------
Gas sales
revenues
billed..... 271,469 193,700 557,560 457,650
Net change in
unbilled gas
sales
revenues..... (5,522) (21,768) 23,482 (8,080)
--------- --------- --------- ---------
Total gas
sales
revenues... $ 265,947 $ 171,932 $ 581,042 $ 449,570
========= ========= ========= =========
Gas sales margin
(thousands of
dollars)......... $ 87,493 $ 72,183 $ 232,526 $ 196,848
========= ========= ========= =========
Gas sales revenue
per thousand
cubic feet
(Mcf) billed:
Residential.... $ 5.073 $ 4.148 $ 5.361 $ 4.850
Commercial..... 5.016 3.919 4.702 4.102
Industrial and
irrigation... 5.607 3.781 4.338 3.642
Public autho-
rities and
other........ 3.583 3.161 2.569 3.346
Pipeline and
marketing.... 2.240 2.046 2.111 2.255
Weather effect:
Degree days:
Texas and
Oklahoma
service
territories.. 1,102 957 1,913 1,638
Missouri
service
territories.. 2,958 2,527 5,617 4,632
Percent of 30-
year measure:
Texas and
Oklahoma
service
terri-
tories..... 93% 80% 95% 79%
Missouri
service
terri-
tories..... 106% 91% 107% 88%
Gas transported in
millions of
cubic feet
(MMcf)........... 15,896 17,289 66,983 61,188
Gas transportation
revenues
(thousands of
dollars)......... $ 5,952 $ 5,422 $ 21,144 $ 16,142
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
The Company's gas utility operations are seasonal in nature with
a significant percentage of the annual revenues and earnings
occurring in the traditional heating-load months. This 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 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 source of funds during the three-month period ended
March 31, 1996 included approximately $75,200,000 in cash flow
from operations. This source provided funds for the purchase of
investment securities of approximately $9,300,000, additions to
property, plant and equipment of approximately $9,021,000, pay-
ments of $13,000,000 on the Company's credit facility and other
working capital needs of the Company. As of March 31, 1996, the
Company had ending cash balances of $38,436,000.
The principal sources of funds during the nine-month period ended
March 31, 1995 included approximately $50,032,000 in cash flow
from operations 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 additions to
property, plant and equipment of approximately $37,733,000, the
repayment of long-term debt of approximately $21,094,000, in-
vestment security purchases of approximately $10,763,000 and
other seasonal working capital needs of the Company. The sig-
nificant 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 syndi-
cated 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 corpo-
rate purposes. At June 30, 1995, March 31, 1996 and April 30,
1996, the outstanding balance under the Revolving Credit
Facility was nil.
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% Sub-
ordinated Deferrable Interest Notes, due 2025. The issuance of
the Preferred Securities was part of a $300,000,000 shelf regis-
tration 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 May 14, 1996 By RONALD J. ENDRES
----------------- -------------------------------
Ronald J. Endres
Senior Vice President --
Finance and Administration
and Chief Financial Officer
Date May 14, 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 Nine Months Twelve Months
Ended Ended Ended
March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995
------- ------- ------- ------- ------- -------
(in thousands of dollars,
except per share amounts)
Net earnings
available for
common stock... $20,549 $16,153 $23,697 $16,542 $23,224 $11,478
======= ======= ======= ======= ======= =======
Primary earnings
per share:
Average shares
outstanding.. 16,217 16,089 16,168 16,051 16,157 16,044
Stock options
issued or
granted...... 559 338 462 361 433 364
------- ------- ------- ------- ------- -------
Average shares
outstanding.. 16,776 16,427 16,630 16,412 16,590 16,408
======= ======= ======= ======= ======= =======
Primary
earnings per
share........ $ 1.22 $ .98 $ 1.42 $ 1.01 $ 1.40 $ 0.70
======= ======= ======= ======= ======= =======
Fully diluted
earnings per
share:
Average shares
outstanding.. 16,217 16,089 16,168 16,051 16,157 16,044
Stock options
issued or
granted...... 597 347 513 361 474 364
------- ------- ------- ------- ------- -------
Average shares
outstanding.. 16,814 16,436 16,681 16,412 16,631 16,408
======= ======= ======= ======= ======= =======
Fully diluted
earnings per
share........ $ 1.22 $ .98 $ 1.42 $ 1.01 $ 1.40 $ 0.70
======= ======= ======= ======= ======= =======
- ---------------------
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 four-for-three stock split distributed in the
form of a 33 1/3% stock dividend on March 11, 1996.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> MAR-31-1996
<PERIOD-TYPE> 9-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $ 751,149,000
<OTHER-PROPERTY-AND-INVEST> $ 10,312,000
<TOTAL-CURRENT-ASSETS> $ 164,569,000
<TOTAL-DEFERRED-CHARGES> $ 114,933,000
<OTHER-ASSETS> $ 14,337,000
<TOTAL-ASSETS> $1,055,300,000
<COMMON> $ 16,270,000
<CAPITAL-SURPLUS-PAID-IN> $ 205,993,000
<RETAINED-EARNINGS> $ 28,489,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> $ 249,958,000
$ 0
$ 100,000,000
<LONG-TERM-DEBT-NET> $ 441,054,000
<SHORT-TERM-NOTES> $ 0
<LONG-TERM-NOTES-PAYABLE> $ 0
<COMMERCIAL-PAPER-OBLIGATIONS> $ 0
<LONG-TERM-DEBT-CURRENT-PORT> $ 601,000
$ 0
<CAPITAL-LEASE-OBLIGATIONS> $ 0
<LEASES-CURRENT> $ 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $ 262,893,000
<TOT-CAPITALIZATION-AND-LIAB> $1,055,300,000
<GROSS-OPERATING-REVENUE> $ 526,195,000
<INCOME-TAX-EXPENSE> $ 15,457,000
<OTHER-OPERATING-EXPENSES> $ 79,540,000
<TOTAL-OPERATING-EXPENSES> $ 144,337,000
<OPERATING-INCOME-LOSS> $ 68,973,000
<OTHER-INCOME-NET> $ 4,591,000
<INCOME-BEFORE-INTEREST-EXPEN> $ 50,997,000
<TOTAL-INTEREST-EXPENSE> $ 27,300,000
<NET-INCOME> $ 23,697,000
$ 0
<EARNINGS-AVAILABLE-FOR-COMM> $ 23,697,000
<COMMON-STOCK-DIVIDENDS> $ 0
<TOTAL-INTEREST-ON-BONDS> $ 0
<CASH-FLOW-OPERATIONS> $ 50,032,000
<EPS-PRIMARY> $ 1.42
<EPS-DILUTED> $ 1.42
</TABLE>
