-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, YYqptTS/eYVXz+NKgzd8CoJFpJkPM5YLk0RVyvy0/vlEH6eY7fKNG9nmPtfbOErh a+ZXdY+jaCk5MiPJUgq9SA== 0000014525-95-000017.txt : 19950530 0000014525-95-000017.hdr.sgml : 19950530 ACCESSION NUMBER: 0000014525-95-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950512 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKLYN UNION GAS CO CENTRAL INDEX KEY: 0000014525 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 110584613 STATE OF INCORPORATION: NY FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-00722 FILM NUMBER: 95538217 BUSINESS ADDRESS: STREET 1: ONE METROTEC CENTER CITY: BROOKLYN STATE: NY ZIP: 11201 BUSINESS PHONE: 7184032000 MAIL ADDRESS: STREET 1: ONE METROTEC CENTER CITY: BROOKLYN STATE: NY ZIP: 11201 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-722 THE BROOKLYN UNION GAS COMPANY (Exact name of Registrant as specified in its charter) New York 11-0584613 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) One MetroTech Center, Brooklyn, New York 11201-3851 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (718) 403-2000 NONE (Former name, former address and former fiscal year, if changed since last report) 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 APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class of Common Stock Outstanding at May 1, 1995 $.33 1/3 par value 48,372,695
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES INDEX Part I. Financial Information Page No. Condensed Consolidated Balance Sheet - March 31, 1995 and 1994, and September 30, 1994 3 Condensed Consolidated Statement of Income - Three, Six and Twelve Months Ended March 31, 1995 and 1994 4 Condensed Consolidated Statement of Cash Flows - Six and Twelve Months Ended March 31, 1995 and 1994 5 Notes to Condensed Consolidated Financial Statements 6 Management's Discussion and Analysis of Results of Operations and Financial Condition 10 Review of Independent Public Accountants 15 Report of Independent Public Accountants 16 Part II. Other Information Item 1 - Legal Proceedings 17 Item 5 - Other Information 17 Item 6 - Exhibits and Reports on Form 8-K 17 Signatures 18
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET March 31, March 31, September 30, 1995 1994 1994 (Unaudited) (Unaudited) (Audited) (Thousands of Dollars)
Assets Property Utility, at cost $ 1,634,326 $ 1,554,897 $ 1,599,452 Accumulated depreciation (375,295) (339,639) (354,925) Gas exploration and production, at cost 316,182 250,991 276,659 Accumulated depletion (127,277) (103,377) (115,890) 1,447,936 1,362,872 1,405,296 Investments in Energy Services 107,423 82,357 91,283 Current Assets Cash 12,858 11,112 11,610 Temporary cash investments 64,435 39,325 41,881 Accounts receivable 342,265 471,304 193,130 Allowance for uncollectible accounts (18,682) (19,531) (14,963) Gas in storage, at average cost 39,089 30,242 96,076 Materials and supplies, at average cost 12,370 11,696 11,356 Prepaid gas costs 1,752 643 14,667 Other 25,206 17,295 31,441 479,293 562,086 385,198 Deferred Charges 168,491 139,404 147,297 $ 2,203,143 $ 2,146,719 $ 2,029,074 Capitalization and Liabilities Capitalization Common stock, $.33 1/3 par value stated at $ 508,875 $ 480,041 $ 494,770 Retained earnings 362,352 339,732 279,466 Total common equity 871,227 819,773 774,236 Preferred stock, redeemable 6,900 7,200 7,200 Long-term debt 714,759 702,842 701,377 1,592,886 1,529,815 1,482,813 Current Liabilities Accounts payable 128,753 176,591 132,491 Dividends payable 17,176 16,459 16,609 Taxes accrued 57,096 69,342 15,213 Customer deposits 22,748 22,506 22,445 Customer budget plan credits - - 18,358 Interest accrued and other 40,135 51,943 45,807 265,908 336,841 250,923 Deferred Credits Federal income tax 245,240 221,648 230,316 Unamortized investment tax credit 21,474 22,486 22,000 Other 77,635 35,929 43,022 344,349 280,063 295,338 $ 2,203,143 $ 2,146,719 $ 2,029,074
See accompanying notes to condensed consolidated financial statements. THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) Three Months Six Months Twelve Months Ended March 31, Ended March 31, Ended March 31, 1995 1994 1995 1994 1995 1994 (Thousands of Dollars)
Operating Revenues Utility sales $ 468,271 $ 533,830 $ 812,451 $ 888,678 $ 1,203,411 $ 1,225,461 Gas production and other 13,344 15,140 27,512 31,770 54,763 63,841 481,615 548,970 839,963 920,448 1,258,174 1,289,302 Operating Expenses Cost of gas 189,505 246,682 324,630 392,306 493,003 514,084 Operation and maintenance 102,107 109,140 193,469 203,609 376,436 389,352 Depreciation and depletion 17,756 17,648 36,069 34,952 70,846 68,469 General taxes 48,176 55,607 84,954 94,956 140,742 148,594 Federal income tax 38,169 36,332 59,791 57,939 40,044 43,157 Operating Income 85,902 83,561 141,050 136,686 137,103 125,646 Other Income (Expense) Gain on sale of investment in Canadian gas company - - - - - 20,462 Write-off of investment in propane company - - - - - (17,617) Income from equity investments 2,402 1,018 4,022 2,627 6,831 1,472 Other, net (1,042) 1,315 (1,862) 1,117 (3,637) (1,167) Federal income tax (196) 66 (362) 158 562 409 Income Before Interest Charges 87,066 85,960 142,848 140,588 140,859 129,205 Interest Charges Long-term debt 11,992 11,514 23,854 23,373 47,577 46,454 Other 1,434 892 2,516 1,498 5,137 2,827 13,426 12,406 26,370 24,871 52,714 49,281 Net Income 73,640 73,554 116,478 115,717 88,145 79,924 Dividends on Preferred Stock 85 89 171 178 344 358 Income Available for Common Stock $ 73,555 $ 73,465 $ 116,307 $ 115,539 $ 87,801 $ 79,566 Per Share of Common Stock $ 1.53 $ 1.57 $ 2.43 $ 2.48 $ 1.84 $ 1.75 Dividends Declared per Share of Common Stock $ 0.348 $ 0.338 $ 0.695 $ 0.675 $ 1.370 $ 1.335 Average Common Shares Outstanding 48,056,163 46,801,765 47,903,448 46,658,774 47,601,934 45,492,862
See accompanying notes to condensed consolidated financial statements. THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Twelve Months Ended March 31 Ended March 31 1995 1994 1995 1994 (Thousands of Dollars)
CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 116,478 $ 115,717 $ 88,145 $ 79,924 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 38,965 37,777 76,078 73,959 Deferred Federal income tax (3,653) 8,771 (1,609) 11,026 Gain on sale of investment in Canadian gas company - - - (20,462) Write-off of investment in propane company - - - 17,617 Amortization of investment tax credit (526) (588) (1,012) (1,124) (Income) from energy services investments (4,022) (2,627) (6,831) (1,472) Dividends received from energy services investments 1,366 2,365 3,321 8,530 Allowance for equity funds used during construction (518) (1,066) (1,528) (1,960) Change in accounts receivable, net (144,286) (237,337) 124,957 (80,093) Change in accounts payable 1,584 15,009 (42,517) 34,006 Gas inventory and prepayments 69,902 85,356 (9,956) (4,050) Other 55,502 61,972 15,226 26,651 Cash provided by operating activities 130,792 85,349 244,274 142,552 CASH FLOWS FROM FINANCING ACTIVITIES Sale of common stock 14,197 15,021 29,004 74,300 Common stock proceeds receivable - 44,910 - - Issuance of long-term debt 13,382 13,542 11,917 192,742 Commercial paper - 11,500 - 62,000 27,579 84,973 40,921 329,042 Repayments Preferred stock (300) (300) (300) (300) Long-term debt - - - (180,000) Commercial paper - (11,500) - (62,000) 27,279 73,173 40,621 86,742 Dividends paid (33,580) (31,792) (65,792) (61,911) Other (27) (146) 252 (244) Cash (used in) provided by financing activities (6,328) 41,235 (24,919) 24,587 CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditures (excluding allowance for equity funds used during construction) (96,729) (109,014) (185,211) (222,252) Trust funds, utility construction - - - 15,494 Proceeds from sale of investment in Canadian gas company - 11,691 - 41,718 Other (3,933) (83) (7,288) 14,546 Cash used in investing activities (100,662) (97,406) (192,499) (150,494) Change in Cash and Temporary Cash Investments 23,802 29,178 26,856 16,645 Cash and Temporary Cash Investments at Beginning of Period 53,491 21,259 50,437 33,792 Cash and Temporary Cash Investments at End of Period $ 77,293 $ 50,437 $ 77,293 $ 50,437 Temporary cash investments are short-term marketable securities purchased with maturities of three months or less that are carried at cost which approximates their fair value. Supplemental disclosures of cash flows Income taxes $ 22,500 $ 17,400 $ 42,000 $ 36,200 Interest $ 26,431 $ 25,951 $ 51,373 $ 52,322 See accompanying notes to condensed consolidated financial statements.
THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. In the opinion of the Company, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments necessary to present fairly the financial position of the Company as of March 31, 1995 and 1994, and the results of operations for the three, six and twelve months ended March 31, 1995 and 1994, and cash flows for the six and twelve months ended March 31, 1995 and 1994. Certain reclassifications were made to conform prior period financial statements with the current period financial statement presentation. All other adjustments were of a normal, recurring nature. As permitted by the rules and regulations of the Securities and Exchange Commission, the Condensed Consolidated Financial Statements do not include all of the accounting information normally included with financial statements prepared in accordance with generally accepted accounting principles. Accordingly, the Condensed Consolidated Financial Statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 1994. 2. The Company's business is influenced by seasonal weather conditions. Annual revenues are substantially realized during the heating season (November 1 to April 30) as a result of the large proportion of residential heating sales compared with total sales. Accordingly, results of operations are historically most favorable in the second quarter (three months ended March 31) of the Company's fiscal year, with results of operations being next most favorable in the first quarter, while results for the third quarter are marginally unprofitable, and losses are incurred in the fourth quarter. Also, results of operations are affected by the timing and comparative amounts of base tariff rate changes. Therefore, the interim Condensed Consolidated Statement of Income should not be taken as a prediction for any future period. The Company's tariff contains a weather normalization adjustment that requires recovery from or refund to firm customers of shortfalls or excesses of firm net revenues during a heating season due to variations from normal weather, which is the basis for projecting base tariff revenue requirements. Effective October 1, 1994, the adjustment was modified to exclude weather variations of less than 2.2% from normal. 3. Investment in Iroquois Pipeline A Company subsidiary, North East Transmission Co., Inc. (NETCO), owns an 11.4% interest in the Iroquois Gas Transmission System, L.P. (Iroquois), which partnership owns and operates a 375-mile pipeline from Canada to the Northeast. The subsidiary's investment in Iroquois was $21.9 million at March 31, 1995. In 1992, Iroquois was informed by the U.S. Attorneys' Offices of various districts of New York of a civil investigation of alleged violations of the U.S. Army Corps of Engineers (COE) permit, a related State Water Quality Certification and/or the Federal Clean Water Act. Further, agency investigations of matters related to the construction of the Iroquois Pipeline have been commenced by the COE and the Federal Energy Regulatory Commission (FERC). Iroquois also has received inquiries from the Federal Department of Transportation and the New York State Public Service Commission (PSC) concerning certain construction activities. Civil penalties could be imposed if violations of Iroquois' governmental authorizations are shown to have occurred. No proceedings in connection with these investigations and inquiries have been commenced. Also in 1992, a criminal investigation of Iroquois was initiated and is being conducted by Federal authorities pertaining to various matters related to the construction of the pipeline. To date, no criminal charges have been filed. Iroquois' management believes the pipeline construction and right-of-way activities were conducted in a responsible manner. However, Iroquois deems it probable that indictments will be sought in connection with this investigation and in them substantial fines and other sanctions. The Company has been informed that Iroquois and its counsel will confer with those responsible for the civil and criminal investigations, from time to time, both to gain an informed understanding of the focus and direction of the investigations in order to defend itself and to explore possible resolutions that may be acceptable to all parties. Although a comprehensive resolution of these matters could have a material adverse effect on Iroquois' financial condition, the amount of potential loss cannot be reasonably estimated at this time and no understandings or agreements have been reached that have led Iroquois to make provision for any liability associated with the potential disposition of these matters. Based on information currently available, the Company does not believe that the resolution of these matters will have a material effect on its consolidated financial results for the fiscal year. 4. Environmental Matters Historically, the Company, or a predecessor entity to the Company, owned or operated several former manufactured gas plant (MGP) sites. These sites have been identified for the New York State Department of Environmental Conservation (DEC) for inclusion on appropriate waste site inventories. In certain circumstances former MGP sites may give rise to environmental cleanup responsibilities for the Company. Two MGP sites are under active consideration by the Company. One site, which is located on property still owned by the Company, is the former Coney Island MGP facility located in Brooklyn, New York. This site is the subject of continuing interim remedial action under the direction of the U.S. Coast Guard. Moreover, the Company recently has completed negotiations with the DEC with respect to a consent order addressing the overall remediation of the Coney Island site in accordance with state law. Upon execution of the consent order, a schedule of investigative and cleanup activities will commence, leading to a cleanup over the next several years. The other site currently is owned by the City of New York (City). The Company and the City are in the process of discussing a mutual approach to sharing potential environmental responsibility for this site. The Company believes it is likely that, at a minimum, investigative costs will be incurred by the Company. The DEC is maintaining open files and requiring the Company to continue monitoring or related investigatory efforts at two other Company-owned properties. Except as described above, no administrative or judicial proceedings or claims involving other former MGP sites have been initiated. Although the potential cost of cleanup with respect to these other sites may be material if the Company ever is compelled to address these sites, the Company cannot at this time determine the cost or extent of any cleanup efforts if cleanup ultimately should be required. Based upon the terms of the consent order for the Coney Island site and costs of investigation for the other MGP site under active consideration, the Company believes that the minimum cost of MGP-related environmental cleanup will be approximately $34 million, which, based upon current information, will be primarily for the Coney Island site. This amount includes approximately $4 million of costs expended as of March 31, 1995. The Company's actual MGP- related costs may be substantially higher, depending upon remediation experience, eventual end use of the sites, and environmental conditions not addressed in the consent order or current investigative plans. Such potential additional costs are not subject to estimation at this time. As of March 31, 1995, the Company had an unpaid liability of $29.8 million and a related unamortized regulatory asset of $33.4 million. By order issued February 16, 1995, the PSC approved the Company's July 1993 petition to defer the costs associated with environmental site investigation and remediation incurred in 1993 and thereafter. Pursuant to that order, rates commencing in October 1994 reflect the recovery of $4.1 million of interim response costs deferred as of September 30, 1993 over a five-year period. Commencing in October 1995 and 1996, the Company is permitted to reflect in rates increments to the deferred balance of environmental site investigation and remediation costs recorded as of September 30, 1994 and 1995, respectively, each over a five-year period. The recovery of these costs in rates is conditioned upon the absence of a PSC determination that such costs have not been reasonably or prudently incurred. In addition, the Company must demonstrate that it has taken all reasonable steps to obtain cost recovery from all available funding sources, including other responsible parties and insurance carriers. 5. Regulatory Assets Statement of Financial Accounting Standards (SFAS) No. 121, issued in March 1995 and effective for 1996, establishes accounting standards for the impairment of long-lived assets. The new standard requires impairment losses on long-lived assets to be recognized when an asset's book value exceeds its expected future cash flows (undiscounted). SFAS No. 121 also requires that regulatory assets which are no longer probable of recovery through future revenues be charged to earnings. This statement is not expected to have an impact on the Company's financial condition or results of operations upon adoption. Regulatory assets arise from the allocation of costs and revenues to accounting periods for ratemaking and regulatory purposes differently from bases generally applied by nonregulated companies in accordance with SFAS No. 71, "Accounting for Certain Types of Regulation." The Company had net regulatory assets of approximately $116 million as of March 31, 1995, which included principally $82.2 million related to Federal income taxes and $33.4 million related to deferred environmental costs. These amounts are included in Deferred Charges in the Condensed Consolidated Balance Sheet at March 31, 1995. In the event that it was no longer subject to the provisions of SFAS No. 71, the Company estimates that the write-off of these net regulatory assets could result in a charge to net income of approximately $70 million. THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Operating Results The following is a summary of items affecting comparative earnings and a discussion of the material changes in revenues and expenses during the following periods: (1) Three Months ended March 31, 1995 vs. Three Months ended March 31, 1994. (2) Six Months ended March 31, 1995 vs. Six Months ended March 31, 1994. (3) Twelve Months ended March 31, 1995 vs. Twelve Months ended March 31, 1994. Consolidated income available for common stock for the second quarter of fiscal 1995 was $73.6 million, or $1.53 per share, compared to $73.5 million, or $1.57 per share, for the second quarter of last year. Earnings for the six months ended March 31, 1995 were $116.3 million, or $2.43 per share, compared to $115.5 million, or $2.48 per share, in the six months ended March 31, 1994. Consolidated earnings for the twelve months ended March 31, 1995 were $87.8 million, or $1.84 per share, compared to $79.6 million, or $1.75 per share, for the same period a year ago. Earnings per share amounts in 1995 reflect the effect of a higher number of shares outstanding. Income from utility operations reflects continued heating sales additions, savings due to early retirement programs and other ongoing cost-reduction efforts, as well as improved margins in large-volume markets both within and outside our traditional service area. Under the three-year rate plan effective October 1, 1994, the allowed rate of return on utility common equity is 11% in 1995, compared to 12.1% in 1994. Improved performance-based incentive provisions are expected to increase the rate of returns above the allowed level on utility common equity in 1995. The effect on utility revenues of the extreme variations due to warmer or colder than normal weather during the current and past heating seasons, respectively, was largely offset by the weather normalization adjustment included in the Company's tariff. However, effective October 1, 1994, the adjustment was modified to exclude weather variations of less than 2.2% from normal. This modification had caused an estimated reduction in utility revenues of approximately $2 million in the quarter ended March 31, 1995 and approximately $5 million for both the six and twelve month periods ended March 31, 1995. Earnings from gas exploration and production as well as from energy-related investments in cogeneration, pipelines, storage projects and associated activities were slightly lower compared to last year's periods. Comparative earnings for the most part reflect lower gas production volumes, largely due to weather- related demand which adversely affected gas prices this winter. However, substantial price protection was provided by use of financial hedging of gas prices as discussed below. Portions of estimated future production are also covered by hedge positions. Based upon degree days, weather in the second quarter of fiscal 1995 was 7.3% warmer than normal and 18.2% warmer than the second quarter of last year. Firm gas sales in the quarter ended March 31, 1995 were 54,410 MDTH, compared to 61,679 MDTH in the quarter ended March 31, 1994. Firm gas sales were 88,951 MDTH for the six months ended March 31, 1995 representing a decrease of 12.1% from the same period last year, which was 2.7% colder. Weather for the twelve months ended March 31, 1995 was 13.4% warmer than normal and 17.6% warmer than the twelve months ended March 31, 1994. Consequently, firm gas sales of 121,211 MDTH decreased 9.2% compared with sales in the corresponding period last year. Net revenues (utility operating revenues less cost of gas of utility sales) decreased 2.9%, 1.7% and .14%, respectively, for the three, six and twelve months ended March 31, 1995 compared with the corresponding period last year. The decrease was primarily attributable to the modification of the terms of the weather normalization adjustment. Gas production and other revenues primarily reflect variations in revenues from gas exploration and production operations in all periods presented. Gas exploration and production revenues for the quarter ended March 31, 1995 were 12.9% lower than revenues in the comparative period last year, reflecting a 1 billion cubic foot (BCF) decrease, primarily in off-shore production. The effective price (average cash price received for production net of realized hedging gains and losses) remained constant due to the use of hedging strategies, which added $1.9 million to revenues. Gas exploration and production revenues for the six months ended March 31, 1995 were 11.7% lower than the six months ended March 31, 1994, when off-shore production was 1.1 BCF higher, and the effective price was 7.2% higher due to higher cash prices received for production. Hedging gains for the six months ended March 31, 1995 amounted to $2.8 million. Revenues for the twelve months ended March 31, 1995 were 14.3% lower than the twelve months ended March 31, 1994, reflecting a 4.1 BCF decrease in volume due to the sale of Canadian operations in 1994, and a 1.0 BCF decrease in U.S. production. Canadian operations were sold to realize the profit and value embodied in the investment. The effective price for the comparative twelve month periods remained constant, reflecting lower Canadian prices offset by higher U.S. prices received last year. Hedging gains for the twelve months ended March 31, 1995 were $2.7 million. The decrease in operation and maintenance expense for the three, six and twelve month periods ended March 31, 1995 reflects ongoing productivity savings and lower operating expense due to warmer weather. Increases in depreciation expense in the current periods primarily are a result of utility property additions. General taxes principally include state and city taxes on utility revenue and property. The decrease for three, six and twelve month periods ended March 31, 1995 is related to the decrease in utility revenues. Federal income tax expense in the three, six and twelve months reflects changes in pre-tax operating income. Interest charges on long-term debt in all periods generally reflect higher average subsidiary borrowings. Other interest expense reflects accruals related to regulatory settlement items. Dividends on preferred stock reflect reductions in the level of preferred stock outstanding due to sinking fund redemptions. Income from energy services investments includes continued positive results from the Company's investments in cogeneration, pipeline and storage projects. (See Notes to Condensed Consolidated Financial Statements, Note 3., " Investment in Iroquois Pipeline.") The twelve months ended March 31, 1994 included operating losses related to a propane investment which was sold in September 1993. Financial Condition Cash provided by operating activities during periods ended March 31, 1995 remained strong and has been enhanced substantially by the timing of utility gas cost recoveries, which have been affected by dramatic swings in weather compared with prior periods. Changes in current assets and liabilities at March 31, 1995 compared to March 31, 1994 are substantially related to weather variations, while such changes compared to September 30, 1994 are seasonal in nature. Consolidated capital expenditures for the twelve months ended March 31, 1995 were $186.7 million, of which $87.7 million was related to non-utility activities. Capital expenditures for fiscal years 1995 and 1996 are estimated to be approximately $185 million in each year, including $75 million per year related to non-utility activities. The Company currently has bank lines of credit of $75 million, which secure the issuance of commercial paper. The lines can be increased to $150 million by December 1995. Related borrowings, when necessary, are used primarily to finance seasonal working capital requirements. In addition, two subsidiaries have credit lines totalling $84 million, which for the most part support borrowings under a revolving loan agreement. Depending on market conditions, the Company expects to issue tax- exempt debt in an advantageous form in conjunction with the possible refunding of the Company's 9% and 8.75% Gas Facilities Revenue Bonds, which are callable on or after May 15, 1995 and July 1, 1995, respectively, at optional redemption prices of $102. Rate Matters Rate Settlement Plan: In October 1994, the PSC approved a new three-year rate plan. The agreement allows an 11.0% return on common equity devoted to utility operations in fiscal 1995, the first year of the new rate plan, compared to 12.1% in fiscal 1994. However, improved incentive provisions are expected to result in an earned rate of return in 1995 in excess of the allowed return. The allowed return will be adjusted in each of the last two years of the rate plan to reflect changes in capital costs. In addition to improved earnings sharing provisions, the plan provides new incentives, more flexible pricing in the large-volume competitive markets, and rate design modifications to improve the Company's competitive position. The Company is permitted to retain 100% of any earnings from discrete incentives (up to 100 basis points on utility equity.) With respect to earnings sharing provisions, the Company can retain 75% of the first 100 basis points of earnings in excess of the allowed return on utility equity unrelated to discrete incentives, and 50% of any additional earnings above that level. In addition, the Company will retain 20% of margins above $1.8 million from sales of the Company's New York Market Hub (essentially off-system sales), taking advantage of competitive opportunities afforded by Federal and state regulatory policies. The agreement provides for no base rate increase in 1995; however, the Company is permitted to amortize to income approximately $1.3 million of previously deferred credits. Base rate increases in years two and three, if any, will be limited to the rate of inflation and will be partially offset by the use of additional available deferred credits. See Notes to the Condensed Consolidated Financial Statements, Note 5., "Regulatory Assets" Restructuring Proceeding: In December 1994, the PSC issued its order in the gas industry restructuring case. The proceeding was instituted by the PSC in response to the restructuring of interstate pipeline services by Federal Energy Regulatory Commission Order 636, which took effect in November 1993. The PSC order addresses incentives and margin-sharing issues consistent with the Company's new rate plan and provides utilities broad discretion to employ market-based pricing (subject to caps) for services offered to large-volume, or non-core, customers with dual-fuel capability. The order allows the Company to continue to offer customers a complete array of bundled sales services as well as gas-supply pricing flexibility generally comparable to that offered by unregulated competitors to large volume customers; however, it continues to prohibit the Company's gas marketing subsidiary from operating within the Company's territory. The Company must offer core customers, reliant solely on gas as a heating fuel, access to available pipeline transportation and storage capacity with provision for recovery of transition costs and full margin transportation rates. The order reduces the minimum transportation service volume requirement for customers, while encouraging the ultimate elimination of such a requirement. Lastly, the order calls for a new proceeding currently underway to evaluate gas purchasing practices and revised gas cost recovery mechanisms and invites proposals for providing service to small- volume customers aggregated into gas purchasing groups. The Company is fully prepared to meet the requirements of the PSC order. It has filed tariffs applicable to both core and non-core markets in compliance with the PSC order, and, pursuant to the terms of the three-year rate settlement, has proposed an incentive gas cost recovery mechanism. That mechanism is being considered in the new proceeding described above. The PSC is expected to act on the proposal by September 1, 1995. Environmental Matters The Company is subject to various Federal, state and local laws and regulatory programs related to the environment. These environmental laws govern both the normal, ongoing operations of the Company as well as the cleanup of historically contaminated properties. Ongoing environmental compliance activities, which historically have not been material, are integrated with the Company's regular operations and maintenance activities. However, as of March 31, 1995 the Company had an unamortized deferred balance of $33.4 million representing its estimate of the minimum cost associated with investigation and remediation at former MGP sites. Of this amount, $4.3 million was expended by March 31, 1995. (See Notes to Condensed Consolidated Financial Statements, Note 4., "Environmental Matters.") REVIEW OF INDEPENDENT PUBLIC ACCOUNTANTS Arthur Andersen LLP has performed reviews in accordance with standards established by the American Institute of Certified Public Accountants of the Condensed Consolidated Financial Statements for the periods set forth in their report shown on page 16. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Brooklyn Union Gas Company: We have reviewed the accompanying condensed consolidated balance sheets of The Brooklyn Union Gas Company (a New York corporation) and subsidiaries as of March 31, 1995 and 1994, and the related condensed consolidated statements of income for the three, six and twelve month periods ended March 31, 1995 and 1994, and the condensed consolidated statements of cash flows for the six and twelve month periods ended March 31, 1995 and 1994. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet and consolidated statement of capitalization of The Brooklyn Union Gas Company and subsidiaries as of September 30, 1994, and the related consolidated statements of income, retained earnings, and cash flows for the year then ended (not presented herein) and, in our report dated October 26, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of September 30, 1994 is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP New York, New York April 26, 1995 Part II. Other Information Item 1. Legal Proceedings The Company has from time to time been named as a defendant in various legal proceedings. In the opinion of management, the ultimate disposition of currently asserted claims will not have a materially adverse impact on the Company's financial position or results of operations. For information regarding governmental investigations of alleged environmental, civil and criminal violations involving the Iroquois Pipeline, see the Notes to Condensed Consolidated Financial Statements, Note 3., "Investment in Iroquois Pipeline." For information regarding environmental matters affecting the Company, see Note 4., "Environmental Matters." Item 5. Other Information Effective April 1, 1995, gas marketing activities of BRING Gas Services Corporation, a wholly-owned subsidiary of the Company, were joined pursuant to investments in a LLC with those of Pennzoil Gas Marketing Co., a wholly-owned subsidiary of Pennzoil Corporation. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (11) Statement re computation of per share earnings. (15) Letter re unaudited interim financial information. (27) Financial data schedule. (b) Reports on Form 8-K There were no reports filed on Form 8-K for the quarter ended March 31, 1995. THE BROOKLYN UNION GAS COMPANY AND SUBSIDIARIES SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized. THE BROOKLYN UNION GAS COMPANY (Registrant) Date May 11, 1995 s/ V.D. Enright V.D. Enright Senior Vice President and Chief Financial Officer Date May 11, 1995 s/ R.M. Desmond R.M. Desmond Vice President, Comptroller and Chief Accounting Officer EX-27 2
UT 0000014525 BROOKLYN UNION GAS 1000 U.S DOLLARS 6-MOS SEP-30-1995 OCT-01-1994 MAR-31-1995 1 PER-BOOK 1,259,031 296,328 479,293 168,491 0 2,203,143 16,071 492,804 362,352 871,227 0 6,900 714,759 0 0 0 0 300 0 0 609,957 2,203,143 839,963 59,791 639,122 698,913 141,050 1,798 142,848 26,370 116,478 171 116,307 33,409 23,083 130,792 2.43 2.43
EX-15 3 Exhibit 15 1345 Avenue of the Americas New York, NY 10105 May 11, 1995 The Brooklyn Union Gas Company One MetroTech Center Brooklyn, NY 11201 Gentlemen: We are aware that The Brooklyn Union Gas Company has incorporated by reference in its previously filed Registration Statements No. 33-66182, 33-61283, and 33-51561, its Form 10-Q for the quarter ended March 31, 1995 which includes our report dated April 26, 1995 covering the unaudited interim financial information contained therein. Pursuant to Regulation C of the Securities Act of 1933, that report is not considered a part of the registration statements prepared or certified by our firm within the meaning of Sections 7 and 11 of the Act. Very truly yours, ARTHUR ANDERSEN LLP -----END PRIVACY-ENHANCED MESSAGE-----