<PAGE>
=================================================================
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------
FORM 10-Q
For the quarterly period ended
------------------------------
December 31, 1997
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 February 6, 1998 was 18,796,384.
=================================================================
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
FORM 10-Q
December 31, 1997
Index
PART I. FINANCIAL INFORMATION Page(s)
-------
Item 1. Financial Statements
Consolidated statements of operations -
three, six and twelve months ended
December 31, 1997 and 1996
Consolidated balance sheet - December 31,
1997 and 1996 and June 30, 1997
Consolidated statement of stockholders'
equity - six months ended December 31,
1997 and twelve months ended June 30,
1997
Consolidated statements of cash flows -
three, six and twelve months ended
December 31, 1997 and 1996
Notes to consolidated financial statements
Item 2. Management's Discussion and Analysis of
FinancialCondition and Results of Operations
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
(See "CONTINGENCIES" in Notes to Consoli-
dated FinancialStatements)
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
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended December 31,
-------------------------------
1997 1996
------------ ------------
(thousands of dollars, except
shares and per share amounts)
Operating revenues.............. $ 221,162 $ 231,462
Gas purchase costs.............. 143,834 154,945
----------- -----------
Operating margin.............. 77,328 76,517
Revenue-related taxes........... 11,647 12,840
----------- -----------
Net operating margin.......... 65,681 63,677
Operating expenses:
Operating, maintenance and
general..................... 26,669 27,180
Depreciation and amortization. 9,550 8,395
Taxes, other than on income
and revenues................ 2,932 2,537
----------- -----------
Total operating expenses.... 39,151 38,112
----------- -----------
Net operating revenues...... 26,530 25,565
----------- -----------
Other income (expenses):
Interest ..................... (9,124) (8,741)
Dividends on preferred
securities of subsidiary
trust....................... (2,370) (2,370)
Other, net.................... 592 1,063
----------- -----------
Total other expenses, net... (10,902) (10,048)
----------- -----------
Earnings before income
taxes..................... 15,628 15,517
Federal and state income taxes.. 5,890 5,856
Net earnings available for
common stock.................. $ 9,738 $ 9,661
=========== ===========
Net earnings per share:
Basic.......................... $ .54 $ .54
=========== ===========
Diluted........................ $ .52 $ .52
=========== ===========
Weighted average shares
outstanding:
Basic....................... 17,992,823 17,902,751
=========== ===========
Diluted..................... 18,726,042 18,629,529
=========== ===========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Six Months Ended December 31,
-----------------------------
1997 1996
------------ ------------
(thousands of dollars, except
shares and per share amounts)
Operating revenues................ $ 295,201 $ 312,292
Gas purchase costs................ 176,276 194,360
----------- -----------
Operating margin................ 118,925 117,932
Revenue-related taxes............. 14,631 16,751
----------- -----------
Net operating margin............ 104,294 101,181
Operating expenses:
Operating, maintenance and
general....................... 50,459 52,495
Depreciation and amortization... 19,148 16,883
Taxes, other than on income and
revenues...................... 6,753 5,799
----------- -----------
Total operating expenses...... 76,360 75,177
----------- -----------
Net operating revenues........ 27,934 26,004
----------- -----------
Other income (expenses):
Interest........................ (17,574) (17,028)
Dividends on preferred securi-
ties of subsidiary trust...... (4,740) (4,740)
Other, net...................... 2,362 2,798
----------- -----------
Total other expenses, net..... (19,952) (18,970)
----------- -----------
Earnings before income taxes.. 7,982 7,034
Federal and state income taxes.... 3,153 2,778
----------- -----------
Net earnings available for
common stock.................... $ 4,829 $ 4,256
=========== ===========
Net earnings per share:
Basic........................... $ .27 $ .24
=========== ===========
Diluted......................... $ .26 $ .23
=========== ===========
Weighted average shares
outstanding:
Basic......................... 17,985,302 17,894,506
=========== ===========
Diluted....................... 18,697,892 18,606,723
=========== ===========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Twelve Months Ended December 31,
--------------------------------
1997 1996
------------ ------------
(thousands of dollars, except
shares and per share amounts)
Operating revenues.............. $ 699,939 $ 681,516
Gas purchase costs.............. 431,103 421,467
----------- -----------
Operating margin.............. 268,836 260,049
Revenue-related taxes........... 37,383 37,934
----------- -----------
Net operating margin.......... 231,453 222,115
Operating expenses:
Operating, maintenance and
general..................... 107,852 106,540
Depreciation and amortization. 37,094 32,748
Taxes, other than on income
and revenues................ 13,107 12,863
----------- -----------
Total operating expenses.... 158,053 152,151
----------- -----------
Net operating revenues...... 73,400 69,964
----------- -----------
Other income (expenses):
Interest...................... (34,011) (34,557)
Dividends on preferred securi-
ties of subsidiary trust.... (9,480) (9,480)
Other, net.................... 2,444 11,755
----------- -----------
Total other expenses, net... (41,047) (32,282)
----------- -----------
Earnings before income
taxes..................... 32,353 37,682
Federal and state income taxes.. 12,748 15,735
----------- -----------
Net earnings available for
common stock.................. $ 19,605 $ 21,947
=========== ===========
Net earnings per share:
Basic......................... $ 1.09 $ 1.23
=========== ===========
Diluted....................... $ 1.05 $ 1.18
=========== ===========
Weighted average shares
outstanding:
Basic....................... 17,969,871 17,888,060
=========== ===========
Diluted..................... 18,676,587 18,572,633
=========== ===========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, June 30,
-------------------------- ----------
1997 1996 1997
------------ ------------ ----------
(unaudited)
(thousands of dollars)
Property, plant and
equipment:
Plant in service..... $ 1,010,724 $ 938,980 $ 963,269
Construction work
in progress........ 6,805 10,506 7,970
----------- ----------- ---------
1,017,529 949,486 971,239
Less accumulated
depreciation and
amortization....... (342,397) (323,341) (329,182)
----------- ----------- ---------
675,132 626,145 642,057
Additional purchase
cost assigned to
utility plant, net. 129,902 132,700 131,539
----------- ----------- ---------
Net property, plant
and equipment...... 805,034 758,845 773,596
----------- ----------- ---------
Current assets:
Accounts receivable,
billed and unbilled.. 133,805 148,059 58,659
Inventories, princi-
pally at average
cost................. 37,712 33,822 21,523
Deferred gas purchase
costs................ 28,964 4,663 --
Investment securities.. -- -- 6,432
Prepayments and other.. 19,269 1,252 9,609
----------- ----------- ---------
Total current assets. 219,750 187,796 96,223
----------- ----------- ---------
Deferred charges......... 104,284 115,738 109,512
Investment securities.... 5,000 15,734 --
Real estate.............. 9,609 8,956 9,046
Other.................... 5,425 2,771 2,026
----------- ----------- ---------
Total assets........... $ 1,149,102 $ 1,089,840 $ 990,403
=========== =========== =========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
STOCKHOLDERS' EQUITY AND LIABILITIES
December 31, June 30,
-------------------------- ----------
1997 1996 1997
------------ ------------ ----------
(unaudited)
(thousands of dollars)
Common stockholders'
equity:
Common stock, $1 par
value; authorized
50,000,000 shares;
issued 18,831,446
shares............. $ 18,831 $ 17,121 $ 17,171
Premium on capital
stock.............. 262,004 224,902 225,252
Less treasury stock,
at cost............ (794) (794) (794)
Retained earnings.... 9,340 10,393 25,169
Unrealized holding
gain............... -- 1,490 664
----------- ----------- ---------
Total common stock-
holders' equity.... 289,381 253,112 267,462
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................... 100,000 100,000 100,000
Long-term debt........... 395,451 385,988 386,157
----------- ----------- ---------
Total capitalization... 784,832 739,100 753,619
Current liabilities:
Long-term debt due
within one year...... 1,316 700 687
Notes payable.......... 93,800 61,200 1,600
Accounts payable....... 78,204 89,788 33,827
Federal, state and
local taxes.......... 20,909 19,379 13,699
Accrued interest....... 12,329 12,372 12,840
Customer deposits...... 17,249 17,215 17,214
Deferred gas purchase
costs................ -- -- 3,565
Other.................. 15,088 17,643 22,291
----------- ----------- ---------
Total current
liabilities........ 238,895 218,297 105,723
----------- ----------- ---------
Deferred credits and
other.................. 72,016 83,717 77,083
Accumulated deferred
income taxes........... 53,359 48,726 53,978
Commitments and
contingencies.......... -- -- --
----------- ----------- ---------
Total................ $ 1,149,102 $ 1,089,840 $ 990,403
=========== =========== =========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Unrea-
Common Premium Trea- lized
Stock, on sury HOlding
$1 Par Capital Stock, Retained Gain
Value Stock at Cost Earnings (Loss) Total
------- -------- ------- -------- -------- ---------
(thousands of dollars)
Balance
July 1,
1996..... $16,275 $206,047 $(794) $ 25,631 $(1,244) $245,915
Net earn-
ings.... -- -- -- 19,032 -- 19,032
5% stock
divi-
dend.... 813 18,681 -- (19,494) -- --
Change in
unrea-
lized
holding
gain or
loss.... -- -- -- -- 1,908 1,908
Exercise
of stock
options. 83 524 -- -- -- 607
------- -------- ----- -------- ------- --------
Balance
June 30,
1997..... 17,171 225,252 (794) 25,169 664 267,462
Net earn-
ings.... -- -- -- 4,829 -- 4,829
5% stock
divi-
dend.... 856 19,802 -- (20,658) -- --
Issuance
of stock
for
acquisi-
tion.... 755 17,285 -- -- -- 18,040
Unrea-
lized
holding
gain.... -- -- -- -- (664) (664)
Exercise
of stock
options. 49 (335) -- -- -- (286)
------- -------- ----- -------- ------- --------
Balance
Decem-
ber 31,
1997..... $18,831 $262,004 $(794) $ 9,340 $ -- $289,381
======= ======== ===== ======== ======= ========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended December 31,
-------------------------------
1997 1996
------------ ------------
(thousands of dollars)
Cash flows from operating
activities:
Net earnings.................. $ 9,738 $ 9,661
Adjustments to reconcile net
earnings to net cash flows
from (used in) operating
activities:
Depreciation and amortiza-
tion....................... 9,550 8,395
Deferred income taxes....... 1,231 2,178
Provision for bad debts..... 1,702 1,721
Deferral of interest and
other expenses............. (442) (1,694)
Gain on sale of investment
securities................. -- (759)
Other, net.................. 348 226
Changes in assets and
liabilities:
Increase in accounts
receivable, billed and
unbilled................. (95,546) (109,527)
Increase in accounts
payable.................. 48,558 60,667
Increase in taxes and
other liabilities........ 19,725 15,905
Increase in customer
deposits.......... ...... 536 1,058
Decrease (increase) in
deferred gas purchase
costs.................... (3,754) 4,548
Decrease (increase) in
inventories.............. (1,637) 9,397
Decrease (increase) in
other accounts........... (2,815) 1,855
----------- -----------
Net cash flows from (used
in) operating activities... (12,806) 3,631
Cash flows used in investing
activities:
Additions to property, plant
and equipment................ (22,167) (17,642)
Purchase of investment
securities................... (5,000) --
Proceeds from sale of
investment securities........ -- 527
Increase in customer advances. 1,200 510
Increase in deferred charges
and credits.................. 865 2,013
Other......................... (812) 490
----------- -----------
Net cash flows used in
investing activities........ (25,914) (14,102)
----------- -----------
Cash flows from financing
activities:
Repayment of debt............. (255) (135)
Net borrowings under
financing facilities......... 33,500 5,700
Increase in cash overdrafts... 5,444 4,699
Other, net.................... 31 207
----------- -----------
Net cash flows from
financing activities........ 38,720 10,471
----------- -----------
Net change in cash and cash
equivalents.................... -- --
Cash and cash equivalents at
beginning of period............ -- --
----------- -----------
Cash and cash equivalents at
end of period.................. $ -- $ --
=========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the period
for:
Interest.................... $ 2,579 $ 1,935
=========== ===========
Income taxes................ $ 101 $ 1,500
=========== ===========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended December 31,
-----------------------------
1997 1996
------------ ------------
(thousands of dollars)
Cash flows from operating
activities:
Net earnings.................... $ 4,829 $ 4,256
Adjustments to reconcile net
earnings to net cash flows
used in operating activities:
Depreciation and amortization. 19,148 16,883
Deferred income taxes......... (261) 3,707
Provision for bad debts....... 2,052 2,836
Deferral of interest and
other expenses............... (719) (3,251)
Gain on sale of investment
securities................... (1,088) (759)
Other, net.................... 546 333
Changes in assets and
liabilities, net of acquisi-
tions and dispositions:
Increase in accounts
receivable, billed and
unbilled................... (77,198) (100,035)
Increase in accounts
payable.................... 38,505 45,712
Increase in taxes and other
liabilities................ 6,699 2,237
Increase in customer
deposits................... 35 1,559
Increase in deferred gas
purchase costs............. (32,529) (2,012)
Increase in inventories..... (16,044) (6,637)
Decrease (increase) in
other accounts............. 87 (27)
----------- -----------
Net cash flows used in
operating activities......... (55,938) (35,198)
----------- -----------
Cash flows used in investing
activities:
Additions to property, plant
and equipment.................. (39,175) (31,110)
Acquisition of operations,
net of cash received........... (745) (1,162)
Purchase of investment
securities..................... (5,000) (5,363)
Proceeds from sale of
investment securities.......... 6,531 527
Increase in customer advances... 2,256 1,914
Deferred charges and credits.... (3,750) 359
Other........................... (503) 1,223
----------- -----------
Net cash flows used in
investing activities.......... (40,386) (33,612)
----------- -----------
Cash flows from financing
activities:
Repayment of debt............... (480) (321)
Net borrowings under
financing facilities........... 92,200 61,200
Increase in cash overdrafts..... 4,555 4,837
Other, net...................... 49 207
----------- -----------
Net cash flows from financing
activities.................... 96,324 65,923
----------- -----------
Decrease in cash and cash
equivalents...................... -- (2,887)
Cash and cash equivalents at
beginning of period.............. -- 2,887
----------- -----------
Cash and cash equivalents at
end of period.................... $ -- $ --
=========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the period
for:
Interest...................... $ 17,573 $ 16,942
=========== ===========
Income taxes.................. $ 3,871 $ 2,000
=========== ===========
See accompanying notes.
SOUTHERN UNION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Twelve Months Ended December 31,
--------------------------------
1997 1996
------------ ------------
(thousands of dollars)
Cash flows from operating
activities:
Net earnings................. $ 19,605 $ 21,947
Adjustments to reconcile net
earnings to net cash flows
from operating activities:
Depreciation and
amortization.............. 37,094 32,748
Deferred income taxes...... 3,372 11,803
Provision for bad debts.... 10,514 6,899
Deferral of interest and
other expenses............ (1,197) (6,638)
Gain on sale of investment
securities................ (2,874) (759)
Other, net................. 1,290 (253)
Changes in assets and lia-
bilities, net of acquisi-
tions and dispositions:
Decrease (increase) in
accounts receivable,
billed and unbilled..... 726 (43,190)
Increase (decrease) in
accounts payable........ (14,185) 38,307
Increase (decrease) in
taxes and other
liabilities............. 1,487 (4,122)
Increase in customer
deposits................ 35 1,881
Decrease (increase) in
deferred gas purchase
costs................... (24,302) 6,707
Increase in inventories.. (3,716) (9,147)
Increase in other
accounts................ (594) (211)
----------- -----------
Net cash flows from
operating activities....... 27,255 55,972
----------- -----------
Cash flows used in investing
activities:
Additions to property, plant
and equipment............... (72,528) (61,774)
Acquisition of operations,
net of cash received........ (1,444) (1,162)
Purchase of investment
securities.................. (5,000) (14,663)
Proceeds from sale of
investment securities....... 19,331 527
Litigation settlement
proceeds.................... -- 4,250
Increase in customer
advances.................... 2,812 3,606
Decrease in deferred charges
and credits................. (4,103) (4,427)
Proceeds from sale of dis-
tribution and transmission
properties.................. 1,130 14,770
Other........................ (987) 2,036
----------- -----------
Net cash flows used in
investing activities....... (60,789) (56,837)
----------- -----------
Cash flows from financing
activities:
Repayment of debt............ (799) (53,305)
Net borrowings under
financing facilities........ 32,600 48,200
Increase in cash overdrafts.. 1,284 4,837
Other, net................... 449 313
----------- -----------
Net cash flows from
financing activities....... 33,534 45
----------- -----------
Decrease in cash and cash
equivalents................... -- (820)
Cash and cash equivalents at
beginning of period........... -- 820
----------- -----------
Cash and cash equivalents at
end of period................. $ -- $ --
=========== ===========
Supplemental disclosures of
cash flow information:
Cash paid during the
period for:
Interest................... $ 32,913 $ 35,462
=========== ===========
Income taxes............... $ 5,371 $ 7,197
=========== ===========
See accompanying notes.
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 (including both
normal recurring as well as any non-recurring) 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 and cash flows 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 and, together with its wholly-
owned subsidiaries, the Company) Annual Report on Form 10-K for
the fiscal year ended June 30, 1997. Certain prior period
amounts have been reclassified to conform with the current period
presentation.
EARNINGS PER SHARE
The Financial Accounting Standards Board recently issued a
standard, Earnings Per Share, which replaces the previously
reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of
options and warrants. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the new standard.
INVESTMENT SECURITIES
At December 31, 1997, all securities owned by the Company are
accounted for under the cost method. These securities consist of
preferred stock in a non-public company, and dividends are recog-
nized as income when received. Realized gains and losses on
sales of investments, as determined on a specific identification
basis, are included in the Consolidated Statement of Operations
when incurred.
ACQUISITION
On December 31, 1997, the Company issued 755,650 shares to the
owners of Atlantic Utilities Corporation and Subsidiaries
(Atlantic) in connnection with the acquisition of Atlantic. As
the necessary regulatory approvals had not yet been received at
December 31, 1997 the transaction was recorded as a prepayment
of $18,041,000. In January 1998 regulatory approval was received
and cash of $4,436,000 was also given to the previous owners of
Atlantic. The assets of Atlantic will be included in the Com-
pany's consolidated balance sheet at January 1, 1998 as well as
Atlantic's results of operations which will be included in the
Company's statements of consolidated operations and cash flows
since January 1, 1998. The acquisition was accounted for using
the purchase method. The additional purchase cost to be assigned
to utility plant, pending final determination of assets ac-
quired and liabilities assumed, of $8,000,000 reflects the excess
of the purchase price over the historical book carrying value of
the net assets acquired. The additional purchase cost will be
amortized on a straight-line basis over forty years.
On July 23, 1997 two subsidiaries of Southern Union Company
acquired a 42% equity ownership in a natural gas distribution
company serving 16,000 customers in Piedras Negras, Mexico for
$2,700,000. This system is across the border from the Company's
Eagle Pass, Texas service area. On September 8, 1997, the Com-
pany purchased a 45-mile intrastate pipeline for $305,000 which
will augment the Company's gas supply to the city of Eagle Pass
and, subject to necessary regulatory approvals, ultimately
Piedras Negras.
PREFERRED SECURITIES OF SUBSIDIARY TRUST
On May 17, 1995, Southern Union Financing I (Subsidiary Trust), a
consolidated wholly-owned subsidiary of Southern Union, issued
$100,000,000 of 9.48% Trust Originated Preferred Securities (Pre-
ferred Securities). In connection with
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (Common Securities), Southern Union
issued to the Subsidiary Trust $103,092,800 principal amount of
its 9.48% Subordinated Deferrable Interest Notes, due 2025 (Sub-
ordinated Notes). The sole assets of the Subsidiary Trust are
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 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 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 December 31, 1997 and 1996, 4,000,000 shares of Preferred
Securities were outstanding.
DEBT
December 31, June 30,
1997 1997
------------ ------------
(thousands of dollars)
7.60% Senior Notes due 2024........ $ 384,515 $ 384,515
Other.............................. 12,252 2,329
----------- -----------
Total debt......................... 396,767 386,844
Less current portion............. 1,316 687
----------- -----------
Total long-term debt............... $ 395,451 $ 386,157
=========== ===========
The Company has availability under a $100,000,000 revolving
credit facility (Revolving Credit Facility) underwritten by a
syndicate of banks. The Company has additional availability under
uncommitted line of credit facilities (Uncommitted Facilities)
with various banks. Covenants under the Revolving Credit
Facility allow for up to $35,000,000 of borrowings under Uncom-
mitted Facilities at any one time. Borrowings under these facil-
ities are available for Southern Union's working capital, letter
of credit requirements and other general corporate purposes.
Amounts outstanding under these facilities at December 31, 1997
and February 6, 1998 totalled $93,800,000 and $71,300,000,
respectively.
The Company is installing an Automated Meter Reading (AMR) system
at Missouri Gas Energy. The installation of the AMR system
involves a potential investment of $27,000,000. The Company is
accounting for this system as a capital lease obligation and has
recorded an increase in plant and long-term debt of $3,304,000
and $9,903,000 during the three- and six-month period ended
December 31, 1997.
UTILITY REGULATION AND RATES
Under the order of the Federal Energy Regulatory Commission, a
major transporter of gas to Missouri Gas Energy is allowed re-
covery of certain unrecovered deferred gas costs with a remaining
balance of $6,600,000 at December 31, 1997. Missouri Gas Energy
is allowed to recover these costs from its customers through the
PGA mechanism which is filed with and approved by the Missouri
Public Service Commission (MPSC). The receivable and liability
associated with these costs have been recorded as a deferred
charge and a deferred credit, respectively, on the consolidated
balance sheet as of December 31, 1997 and 1996.
Missouri Gas Energy filed a $27,800,000 request for a rate
increase with the MPSC on October 3, 1997. New rates will become
effective on September 2, 1998 unless the case is settled
earlier. The increase includes: recovery of the ongoing
Missouri Safety Program Costs; investments in customer service,
including the first phases of Automated Meter
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reading technology; and higher bad debt expense. The Company's
proposed rates would recover a larger percentage of fixed costs
through the monthly customer charge and a smaller percentage
through the volumetric charge.
STOCK DIVIDEND
On December 10, 1997, Southern Union distributed its annual 5%
common stock dividend to stockholders of record on November 21,
1997. 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.
CONTINGENCIES
On December 30, 1997, Southern Union settled the claims associ-
ated with the removal of hazardous substances from the site of a
former coal gasification plant (Pine Street Canal Site) in
Burlington, Vermont. The cost of the settlement did not have a
material adverse effect on the Company's financial position,
results of operations or cash flows.
Southern Union and Western Resources, Inc. entered into an
Environmental Liability Agreement (Environmental Liability Agree
ment) 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 Lia-
bility 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.
In addition to 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 former service territories, principally in
Arizona and New Mexico, and present service territories 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 an MGP site. The Texas Water Commission (TWC), in
cooperation with the EPA, conducted a site inspection and pre-
liminary assessment of this MGP site. Correspondence received
from the TWC in 1989 concluded that the site "did not appear at
the time of our inspection to pose an apparent threat to the
public or the environment." Pending the performance of a risk
assessment report, in April 1996 the city closed the park and
subsequently permanently relocated the park recreational activi-
ties. Based upon the health risk evaluation conclusions con-
tained in a risk assessment report completed in November, 1997,
the city is proceeding with plans to utilize the property for
basketball courts and city parking. Based upon currently avail-
able 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.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to a 1989 MPSC order, Missouri Gas Energy is engaged in
a major gas safety program in its service area. This program in-
cludes replacement of company- and customer-owned gas service and
yard lines, the movement and resetting of meters, the replacement
of cast iron mains and the replacement and cathodic protection of
bare steel mains (Missouri Safety Program). In connection with
this program, the MPSC issued an accounting authority order (AAO)
in Case No. GO-94-234 in 1994 which authorized MGE to defer de-
preciation expenses, property taxes and carrying costs at a
specified rate of 10.54% on the costs incurred in the Missouri
Safety Program. This AAO was consistent with those which were
issued by the MPSC from 1990 through 1993 to the predecessor
owner of Missouri Gas Energy. Since February 1, 1994, the Com-
pany has followed the specifications of the AAO as provided for
by generally accepted accounting principles. The MPSC rate order
of January 22, 1997, however, retroactively reduced the carrying
cost rate applied by the Company on the expenditures incurred on
the Missouri Safety Program since early 1994 to an Allowance for
Funds Used During Construction (AFUDC) rate which ranged from 4%
to 6% from October 1993 to January 1997. The Company has filed
an appeal of that portion of the rate order in the Missouri State
Court of Appeals, Western District. Absent a reversal of this
part of the rate order, the Company will have to record a one-
time $5,600,000 pre-tax write-off of the previously deferred
carrying costs. Associated carrying costs deferred by the Com-
pany were $542,000 and $920,000 for the three and six months
ended December 31, 1997, respectively. The Company has not pro-
vided for any potential disallowance relative to this matter in
its financial statements because it believes this part of the
order is not lawful and that the related regulatory asset ulti-
mately will be recovered in the future. The Company believes it
will ultimately be successful in litigating this matter and,
therefore, will not have a material adverse effect on its finan-
cial position, results of operations or cash flows.
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.
As a result of the acquisition of Missouri Gas Energy, the Com-
pany assumed certain obligations related to a 1990 settlement of
a Wyoming Tight Sands anti-trust claim. To secure the refund of
the settlement proceeds, the MPSC authorized the establishment of
an independently administered trust to collect cash receipts
under the Tight Sands settlement and repay credit-facility bor-
rowings used for the lump sum payment. In the event the trust
does not receive cash payments from the gas suppliers as provided
by the Tight Sands settlement agreements, the Company is com
mitted to pay its applicable portion of the amount owed the
lender of the credit-facility borrowings. The Company's allo
cable unpaid portion of the amount the trust owes the lender at
December 31, 1997 was $4,263,000.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company'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, subsidiaries of Southern Union have been established
to support and expand natural gas sales and to capitalize on the
Company's gas energy expertise. These subsidiaries market
natural gas to end-users, operate natural gas pipeline systems,
distribute propane and sell commercial gas air conditioning and
other gas-fired engine-driven applications. By providing "one-
stop shopping," the Company can serve its various customers'
specific energy needs, which encompass substantially all of the
natural gas distribution and sales businesses from natural gas
sales to specialized energy consulting services. Certain sub-
sidiaries own or hold interests in real estate and other assets,
which are primarily used in the Company's utility business.
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.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 and 1996
- ---------------------------------------------
The Company recorded net earnings available for common stock of
$9,738,000 for the three-month period ended December 31, 1997
compared with net earnings of $9,661,000 for the same period in
1996. Earnings per diluted share, based on weighted average
common and common share equivalents outstanding during the
period, was $.52 in both 1997 and 1996.
Operating revenues were $221,162,000 for the three-month period
ended December 31, 1997, compared with operating revenues of
$231,462,000 in 1996. Gas purchase costs for the three-month
period ended December 31, 1997 were $143,834,000, compared with
$154,945,000 in 1996. The Company's operating revenues are
affected by the level of sales volumes and by the pass-through of
increases or decreases in the Company's gas purchase costs
through its purchased gas adjustment clauses. Additionally,
revenues are affected by increases or decreases in gross receipts
taxes (revenue-related taxes) which are levied on sales revenue
as collected from customers and remitted to the various taxing
authorities. The decrease in both operating revenues and gas
purchase costs between periods was primarily the result of a 5%
decrease in the average cost of gas from $3.96 per Mcf in 1996 to
$3.78 per Mcf in 1997. The decrease in the average cost of gas
was due to decreases 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. Additionally, operating revenues and gas
purchase costs were effected by a 3% decrease in gas sales volume
to 37,860 MMcf in 1997 from 38,955 MMcf in 1996. The decrease in
sales volumes was primarily due to warmer weather in the Missouri
service areas during the three-month period ended December 31,
1997, which was partially offset by colder weather during the
same period in the Texas service areas.
Weather for Missouri Gas Energy's service territories, which
include the city of Kansas City, Missouri, was 100% of a 30-year
measure for the three-month period ended December 31, 1997, com-
pared with 110% in 1996. Southern Union Gas service territories,
which include the cities of Austin and El Paso, experienced
weather that was 117% of a 30-year measure in 1997, compared with
89% in 1996. Almost half of the customers served by Southern
Union Gas are weather normalized.
Net operating margin (operating margin less revenue-related
taxes) increased $2,004,000 for the three-month period ended
December 31, 1997 compared with the same period in 1996. The net
operating margin increase was due to the Missouri rate increase,
effective as of February 1, 1997, approved by the Missouri Public
Service Commission (MPSC).
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This rate increase increased annual revenues by $8,847,000.
Additionally contributing to the increase in net operating margin
for the three-month period ended December 31, 1997 were increased
revenues of $1,143,000 under a gas supply incentive plan approved
by the MPSC in July 1996. Under the plan, Southern Union and its
Missouri customers share in certain savings below benchmark
levels of gas costs incurred as a result of the Company's gas
procurement activities.
Operating expenses, which include operating, maintenance and
general expenses, depreciation and amortization, and taxes other
than on income and revenues, were $39,151,000 for the three-month
period ended December 31, 1997, an increase of $1,039,000, com-
pared with $38,112,000 in 1996. The increase is primarily a
result of a $1,155,000 increase in depreciation and amortization
and a $395,000 increase in taxes, other than on income and
revenues as a result of including certain costs into rate base
that had been previously deferred.
Interest expense was $9,124,000 for the three-month period ended
December 31, 1997, compared with $8,741,000 in 1996. The in-
crease is primarily due to increased borrowings under the various
financing facilities during the three-month period ended Decem-
ber 31, 1997 compared to the same period in 1996. See "Debt" in
the Notes to the Consolidated Financial Statements included
herein.
Other income for the three-month period ended December 31, 1997
was $592,000, compared with $1,063,000 in 1996. Other income
for the three-month period ended December 31, 1997 consisted
principally of $469,000 related to the deferral of interest and
other expenses associated with the Missouri Gas Energy Safety
Program. Other income for 1996 included $1,694,000 related to
the deferral of interest and other expenses associated with the
Missouri Gas Energy Safety Program and realized gains on the sale
of investment securities of $759,000. This was partially offset
by the write-off of $1,150,000 of acquisition-related costs as a
result of the termination of various acquisition activities.
The effective federal and state income tax rate was 38% in both
1996 and 1997.
Six Months Ended December 31, 1997 and 1996
- -------------------------------------------
The Company recorded net earnings available for common stock of
$4,829,000 for the six-month period ended December 31, 1997 com-
pared with net earnings of $4,256,000 for the same period in
1996. Earnings per diluted share, based on weighted average
common and common share equivalents outstanding during the
period, were $.26 in 1997 compared with earnings per share of
$.23 in 1996.
Operating revenues were $295,201,000 for the six-month period
ended December 31, 1997, compared with operating revenues of
$312,292,000 in 1996. Gas purchase costs for the six-month
period ended December 31, 1997 were $176,276,000, compared with
$194,360,000 in 1996. The decrease in both operating revenues
and gas purchase costs between periods was primarily the result
of a 5% decrease in the average cost of gas from $3.70 in 1996 to
$3.52 per Mcf in 1997, due to decreases in average spot market
gas prices. Additionally, operating revenues and gas purchase
costs were effected by a 5% decrease in gas sales volume to
49,813 MMcf in 1997 from 52,213 MMcf in 1996. The decrease in
sales volumes was primarily due to warmer weather in the Missouri
service areas during the six-month period ended December 31,
1997, which was partially offset by colder weather during the
same period in the Texas service areas.
Missouri Gas Energy's service territories experienced weather
which was 98% of a 30-year measure for the six months ended
December 31, 1997 compared with 111% in 1996. Weather for
Southern Union Gas service territories for the six-month period
ended December 31, 1997 was 116% of a 30-year measure compared
with 89% in 1996.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Net operating margin increased $3,113,000 for the six-month
period ended December 31, 1997 compared with the same period in
1996. Net operating margin increased due to the impact of the
Missouri rate increase, as previously discussed. Additionally
contributing to the increase in net operating margin for the six-
month period ended December 31, 1997 were increased revenues of
$1,420,000 under the Missouri gas supply incentive plan, also
previously discussed.
Operating expenses were $76,360,000 for the six-month period
ended December 31, 1997, an increase of $1,183,000, compared with
$75,177,000 in 1996. The increase is primarily a result of a
$2,265,000 increase in depreciation and amortization and a
$954,000 increase in taxes, other than on income and revenues as
a result of including certain costs into rate base that were
previously deferred. These items were partially offset by a
reduction in bad debt expense.
Interest expense was $17,574,000 for the six-month period ended
December 31, 1997, compared with $17,028,000 in 1996. The in-
crease in interest expense is primarily from increased borrowings
under the various financing facilities, previously discussed.
See "Debt" in the Notes to the Consolidated Financial Statements
for the quarter ended December 31, 1997.
Other income for the six-month period ended December 31, 1997
was $2,362,000 compared with $2,798,000 in 1996. Other income
for the six-month period ended December 31, 1997 included
$1,088,000 in realized gains on the sale of investment securi-
ties, $720,000 related to the deferral of interest and other
expenses associated with the Missouri Gas Energy Safety Program
and net rental income from Lavaca Realty Company (Lavaca Realty),
the Company's real estate subsidiary, of $487,000. Other income
for 1996 included $3,251,000 related to the deferral of interest
and other expenses associated with the Missouri Gas Energy Safety
Program, realized gains on the sale of investment securities of
$759,000 and net rental income from Lavaca Realty of $698,000.
This was partially offset by the write-off of $1,150,000 of
acquisition-related costs, previously discussed, and a $374,000
expense associated with the donation of emissions analysis equip-
ment and software to a Texas university.
The Company's consolidated federal and state effective income tax
rate was 40% and 39% for the six months ended December 31, 1997
and 1996, respectively.
Twelve Months Ended December 31, 1997 and 1996
- ----------------------------------------------
The Company recorded net earnings available for common stock of
$19,605,000 for the twelve-month period ended December 31, 1997
compared with net earnings of $21,947,000 in 1996. Earnings per
diluted share, based on weighted average common and common share
equivalents outstanding during the period, were $1.05 in 1997
compared with earnings per share of $1.18 in 1996.
Operating revenues were $699,939,000 for the twelve-month period
ended December 31, 1997, compared with operating revenues of
$681,516,000 in 1996. Gas purchase costs for the twelve-month
period ended December 31, 1997 were $431,103,000, compared with
$421,467,000 in 1996. The increase in both operating revenues
and gas purchase costs between periods was primarily the result
of a 4% increase in the average cost of gas from $3.45 in 1996 to
$3.58 per Mcf in 1997, due to increases in average spot market
gas prices. Operating revenues were also partially impacted by
the $8,847,000 annual increase to rates, and increased revenues
of $5,420,000 under the Missouri gas supply incentive plan, both
previously discussed. This was partially offset by a 1% decrease
in gas sales volume to 120,005 MMcf in 1997 from 121,786 MMcf in
1996. The decrease in sales volumes was primarily due to warmer
weather in the Missouri service areas during the twelve-month
period ended December 31, 1997, which was partially offset by
colder weather during the same period in the Texas service areas.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Missouri Gas Energy's service territories experienced weather
which was 100% of a 30-year measure for the twelve months ended
December 31, 1997 compared with 107% in 1996. Weather for
Southern Union Gas service territories for the twelve-month
period ended December 31, 1997 was 103% of a 30-year measure com-
pared with 89% in 1996.
Net operating margin increased $9,338,000 for the twelve-month
period ended December 31, 1997 compared with the same period in
1996. Net operating margin increased due to the Missouri rate
increase and increased revenues under the Missouri gas supply
incentive plan, both previously discussed.
Operating expenses were $158,053,000 for the twelve-month period
ended December 31, 1997, an increase of $5,902,000, compared with
$152,151,000 in 1996. The increase is primarily a result of a
$4,346,000 increase in depreciation and amortization and
$3,615,000 in additional bad debt expense associated with in-
creases in delinquent customer accounts, primarily at Missouri
Gas Energy. The increase in depreciation and amortization is due
to including certain costs in rate base that were previously de-
ferred and the increase in bad debt expense is due to higher cus-
tomer bills because of significant increases in natural gas
prices during the 1996/1997 winter heating season. Other in-
creased operating expenses included increased media advertising,
travel and call center labor costs as a result of and in response
to the significant price spikes in natural gas during the 1996/
1997 winter heating season; and increased field and call center
labor and other costs to improve customer service at Missouri Gas
Energy. Partially offsetting these factors was a decrease in
medical, dental, pension and injury and damage claims.
Interest expense was $34,011,000 for the twelve-month period
ended December 31, 1997, compared with $34,557,000 in 1996. The
decrease in interest expense is due to the repurchase of Senior
Notes from June 1995 through June 1996 which was partially offset
by an increase in interest expense from increased borrowings
under the various financing facilities. See "Debt" in the Notes
to the Consolidated Financial Statements for the quarter ended
December 31, 1997.
Other income for the twelve-month period ended December 31, 1997
was $2,444,000 compared with $11,755,000 in 1996. Other income
for the twelve-month period ended December 31, 1997 included
$2,874,000 in realized gains on the sale of investment securi-
ties, $1,198,000 related to the deferral of interest and other
expenses associated with the Missouri Gas Energy Safety Program
and net rental income from Lavaca Realty Company of $1,118,000.
This was partially offset by $2,150,000 for the settlement of
certain billing errors at Missouri Gas Energy and the write-off
of $600,000 acquisition-related costs from the termination of
various acquisition activities. Other income for 1996 included
$6,638,000 related to the deferral of interest and other expenses
associated with the Missouri Gas Energy Safety Program, a pre-tax
gain of $2,050,000 on the sale of Western Gas Interstate and
other operations, a $1,448,000 gain on the repurchase of Senior
Notes, net rental income from Lavaca Realty of $1,401,000 and
realized gains on the sale of investment securities of $759,000.
This was partially offset by the write-off of $1,150,000 of
acquisition-related costs and a $374,000 expense associated with
the donation of emissions analysis equipment and software,
previously discussed.
For the twelve-month period ended December 31, 1997, federal and
state income taxes decreased $2,987,000 over the same period in
1996 due to a reduction in pre-tax earnings as discussed above.
The Company's consolidated federal and state effective income tax
rate was 39% and 42% for the twelve months ended December 31,
1997 and 1996, respectively.
<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 December 31, 1997 and 1996:
Three Months Twelve Months
Ended Ended
December 31, December 31,
----------------- -------------------
1997 1996 1997 1996
-------- -------- --------- ---------
Average number of gas
sales customers
served:
Residential............. 876,877 863,933 871,643 861,328
Commercial.............. 86,539 86,026 86,349 86,364
Industrial and
irrigation............. 558 599 591 625
Public authorities
and other.............. 2,703 2,701 2,694 2,749
Pipeline and marketing.. 238 185 215 379
-------- -------- -------- --------
Total average custo-
mers served.......... 966,915 953,444 961,492 951,445
======== ======== ======== ========
Gas sales in millions
of cubic feet (MMcf)
Residential............. 17,276 17,743 68,242 70,401
Commercial.............. 7,397 8,012 30,104 31,780
Industrial and
irrigation............. 326 452 1,725 2,391
Public authorities
and other.............. 790 734 2,809 2,715
Pipeline and marketing.. 4,583 4,735 17,692 14,800
-------- -------- -------- --------
Gas sales billed....... 30,372 31,676 120,572 122,087
Net change in unbilled
gas sales.............. 7,488 7,279 (567) (301)
-------- -------- -------- --------
Total gas sales....... 37,860 38,955 120,005 121,786
======== ======== ======== ========
Gas sales revenues
(thousands of dollars):
Residential............. $111,944 $113,654 $433,161 $414,491
Commercial.............. 43,374 45,940 170,898 166,452
Industrial and
irrigation............. 1,838 2,481 8,709 10,724
Public authorities and
other.................. 3,498 3,666 13,002 11,101
Pipeline and marketing.. 11,281 12,188 45,670 37,343
-------- -------- -------- --------
Gas revenues billed.... 171,935 177,929 671,440 640,111
Net change in unbilled
gas sales revenues..... 39,171 44,180 (8,834) 12,536
-------- -------- -------- --------
Total gas sales
revenues.............. $211,106 $222,109 $662,606 $652,647
======== ======== ======== ========
Gas sales margin
(thousands of dollars) $ 67,953 $ 67,748 $232,901 $231,436
======== ======== ======== ========
Gas sales revenue per
thousand cubic feet
(Mcf) billed:
Residential............. $ 6.480 $ 6.406 $ 6.347 $ 5.888
Commercial.............. 5.864 5.734 5.677 5.238
Industrial and
irrigation............. 5.642 5.489 5.049 4.485
Public authorities and
other.................. 4.428 4.995 4.629 4.089
Pipeline and marketing.. 2.461 2.574 2.581 2.523
Weather effect:
Degree days:
Southern Union Gas
service territories.... 972 760 2,176 1,917
Missouri Gas Energy
service territories.... 1,945 2,133 5,255 5,630
Percent of normal, based
on 30-year measure:
Southern Union Gas
service territories.... 117% 89% 103% 89%
Missouri Gas Energy
service territories.... 100% 110% 100% 107%
Gas transported in mil-
lions of cubic feet
(MMcf)................... 16,635 15,825 65,610 62,207
Gas transportation reve-
nues (thousands of
dollars)................. $ 5,627 $ 6,195 $ 20,623 $ 20,630
- -------------------------
The above information does not include the operations of Atlantic Utilities
Corporation and Subsidiaries or the Company's 42% equity ownership in a
natural gas distribution company serving Piedras Negras, Mexico.
<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 season-
ality results in a high level of cash flow needs during the peak
winter heating season months, resulting from the required pay-
ments to natural gas suppliers in advance of the receipt of cash
payments from the Company's customers. The Company has histori-
cally 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
December 31, 1997 was $33,500,000 from the Company's financing
facilities. These sources provided funds for additions to
property, plant and equipment of $22,167,000, purchase of invest-
ment securities of $5,000,000 and other seasonal working capital
needs of the Company.
The principal sources of funds during the six-month period ended
December 31, 1997 was $92,200,000 from the Compay's financing
facilities and proceeds from the sale of investment securities of
$6,531,000. These sources provided funds for additions to
property, plant and equipment of $39,175,000, purchases of inven-
tory of $16,044,000, purchase of investment securities of
$5,000,000 and other seasonal working capital needs of the Com- pany.
The effective interest rate under the Company's current debt
structure is 8.1% (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 (Revolving Credit Facility) underwritten by a
syndicate of banks. The Company had additional availability
under uncommitted line of credit facilities (Uncommitted Facili-
ties) with various banks. Covenants under the Revolving Credit
Facility allow for up to $35,000,000 of borrowings under Uncom-
mitted Facilities at any one time. Borrowings under the facili-
ties are available for Southern Union's working capital, letter
of credit requirements and other general corporate purposes.
Amounts outstanding under these facilities at December 31, 1997
and February 6, 1998 were $93,800,000 and $71,300,000, respec-
tively.
<PAGE>
SOUTHERN UNION COMPANY AND SUBSIDIARIES
RESULTS OF VOTES OF SECURITY HOLDERS
Southern Union held its Annual Meeting of Stockholders on
November 11, 1997. The following matters were submitted for a
vote and approved by Southern Union's security holders: (i) the
election of three persons to serve as the Class I directors until
the 2000 Annual Meeting of Stockholders or until their successors
are duly elected and qualified; and (ii) approval of an addi-
tional 900,000 shares of Southern Union Company Common Stock to
be eligible for grant under the Southern Union Company 1992 Long-
Term Stock Incentive 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 I Directors:
John E. Brennan............. 15,882,096 -- 111,703
Frank W. Denius............. 15,885,459 -- 108,340
Roger J. Pearson............ 15,869,319 -- 124,480
Proposal to approve an addi-
tional 900,000 shares of
Southern Union Company Com-
mon Stock to be eligible for
grant under the Southern
Union Company 1992 Long-Term
Stock Incentive Plan......... 10,964,384 181,105 867,055
<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 17, 1998 By: RONALD J. ENDRES
------------------- ----------------
Ronald J. Endres
Executive Vice President and
Chief Financial Officer
Date February 17, 1998 By: DAVID J. KVAPIL
------------------- ---------------
David J. Kvapil
Senior Vice President -
Corporate 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,
1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- -------
(in thousands of dollars, except per share
amounts)
Net earnings
available for
common stock... $ 9,738 $ 9,661 $ 4,829 $ 4,256 $19,605 $21,947
======= ======= ======= ======= ======= =======
Basic earnings
per share:
Average
shares out-
standing..... 17,993 17,903 17,985 17,895 17,970 17,888
======= ======= ======= ======= ======= =======
Basic earn-
ings per
share........ $ .54 $ .54 $ .27 $ .24 $ 1.09 $ 1.23
======= ======= ======= ======= ======= =======
Diluted earnings
per share:
Average shares
outstanding.. 17,993 17,903 17,985 17,895 17,970 17,888
Common stock
equivalents.. 733 727 713 712 707 685
------- ------- ------- ------- ------- -------
Average shares
outstanding.. 18,726 18,630 18,698 18,607 18,677 18,573
======= ======= ======= ======= ======= =======
Diluted earn-
ings per
share........ $ .52 $ .52 $ .26 $ .23 $ 1.05 $ 1.18
======= ======= ======= ======= ======= =======
- ------------------
Note: All periods have been adjusted to reflect the five percent
common stock dividend distributed on December 10, 1997.
<TABLE> <S> <C>
<ARTICLE> UT
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1997
<PERIOD-TYPE> 6-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> $ 805,034,000
<OTHER-PROPERTY-AND-INVEST> $ 9,609,000
<TOTAL-CURRENT-ASSETS> $ 219,750,000
<TOTAL-DEFERRED-CHARGES> $ 104,284,000
<OTHER-ASSETS> $ 5,425,000
<TOTAL-ASSETS> $1,149,102,000
<COMMON> $ 18,831,000
<CAPITAL-SURPLUS-PAID-IN> $ 262,004,000
<RETAINED-EARNINGS> $ 9,340,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> $ 289,381,000
$ 0
$ 100,000,000
<LONG-TERM-DEBT-NET> $ 395,451,000
<SHORT-TERM-NOTES> $ 93,800,000
<LONG-TERM-NOTES-PAYABLE> $ 0
<COMMERCIAL-PAPER-OBLIGATIONS> $ 0
<LONG-TERM-DEBT-CURRENT-PORT> $ 1,316,000
$ 0
<CAPITAL-LEASE-OBLIGATIONS> $ 0
<LEASES-CURRENT> $ 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> $ 144,154,000
<TOT-CAPITALIZATION-AND-LIAB> $1,149,102,000
<GROSS-OPERATING-REVENUE> $ 295,201,000
<INCOME-TAX-EXPENSE> $ 3,153,000
<OTHER-OPERATING-EXPENSES> $ 50,459,000
<TOTAL-OPERATING-EXPENSES> $ 76,360,000
<OPERATING-INCOME-LOSS> $ 27,934,000
<OTHER-INCOME-NET> $ 2,362,000
<INCOME-BEFORE-INTEREST-EXPEN> $ 22,403,000
<TOTAL-INTEREST-EXPENSE> $ 17,574,000
<NET-INCOME> $ 4,829,000
$ 0
<EARNINGS-AVAILABLE-FOR-COMM> $ 4,829,000
<COMMON-STOCK-DIVIDENDS> $ 0
<TOTAL-INTEREST-ON-BONDS> $ 0
<CASH-FLOW-OPERATIONS> $ (55,938,000)
<EPS-PRIMARY> $ .27
<EPS-DILUTED> $ .26
</TABLE>
