-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H/sKFC9M6xOxllxFr4AUbNfVpp9powPl7gCLQLS9JRXbP8ak/lxX6vU+3REiOEmE hsFl8+R6XGvrlLjpN6O22A== 0000203248-96-000001.txt : 19960213 0000203248-96-000001.hdr.sgml : 19960213 ACCESSION NUMBER: 0000203248-96-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960209 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN UNION CO CENTRAL INDEX KEY: 0000203248 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 750571592 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06407 FILM NUMBER: 96514610 BUSINESS ADDRESS: STREET 1: 504 LAVACA ST 8TH FL CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124775852 10-Q 1 ================================================================= UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ----------------- FORM 10-Q For the quarterly period ended ------------------------------ December 31, 1995 Commission File No. 1-6407 ----------------- SOUTHERN UNION COMPANY (Exact name of registrant as specified in its charter) Delaware 75-0571592 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 504 Lavaca Street, Eighth Floor 78701 Austin, Texas (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (512) 477-5852 Securities Registered Pursuant to Section 12(b) of the Act: Title of each class Name of each exchange in ------------------ which registered ------------------------ Common Stock, par value $1 per share New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing require- ments for the past 90 days. Yes X No --- --- The number of shares of the registrant's Common Stock outstanding on February 2, 1996 was 12,163,535. ================================================================= SOUTHERN UNION COMPANY AND SUBSIDIARIES FORM 10-Q December 31, 1995 Index PART I. FINANCIAL INFORMATION Page(s) ------- Item 1. Financial Statements Statements of consolidated operations - three, six and twelve months ended December 31, 1995 and 1994 Consolidated balance sheet - December 31, 1995 and 1994 and June 30, 1995 Statement of common stockholders' equity - six months ended December 31, 1995 and twelve months ended June 30, 1995 Statements of consolidated cash flows - three, six and twelve months ended December 31, 1995 and 1994 Notes to consolidated financial statements Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION Item 1. Legal Proceedings (See "CONTINGENCIES" under Notes to Consolidated Financial Statements) Item 4. Results of Votes of Security Holders Item 6. Exhibits and Reports on Form 8-K (a) Exhibit 11 -- Computation of primary and fully diluted earnings per share (b) Exhibit 27 -- Financial Data Schedule (c) Reports on Form 8-K -- None SOUTHERN UNION COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS Three Months Ended December 31, ------------------------- 1995 1994 ----------- ----------- (thousands of dollars, except shares and per share amounts) Operating revenues................... $ 180,939 $ 147,749 Gas purchase costs................... 106,602 77,634 ---------- ---------- Operating margin..................... 74,337 70,115 Operating expenses: Operating, maintenance and general. 27,761 30,049 Taxes, other than on income........ 13,739 12,106 Depreciation and amortization...... 8,575 8,109 ---------- ---------- Total operating expenses......... 50,075 50,264 ---------- ---------- Net operating revenues........... 24,262 19,851 ---------- ---------- Other income (expenses): Interest on long-term debt......... (8,729) (9,367) Other interest..................... (436) (959) Dividends on preferred securities of subsidiary trust.............. (2,370) -- Other, net......................... 949 410 ---------- ---------- Total other expenses, net........ (10,586) (9,916) ---------- ---------- Earnings before income taxes..... 13,676 9,935 Federal and state income taxes....... 4,930 3,377 ---------- ---------- Net earnings available for common stock....................... $ 8,746 $ 6,558 Earnings per common share: Primary............................ $ .72 $ .55 ========== ========== Fully diluted...................... $ .70 $ .53 ========== ========== Weighted average shares outstanding: Primary............................ 12,120,704 12,027,716 ========== ========== Fully diluted........................ 12,547,513 12,310,560 ========== ========== See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS Six Months Ended December 31, ----------------------- 1995 1994 ----------- ----------- (thousands of dollars, except shares and per share amounts) Operating revenues...................... $ 251,166 $ 217,054 Gas purchase costs...................... 134,431 106,459 ---------- ---------- Operating margin...................... 116,735 110,595 Operating expenses: Operating, maintenance and general.... 53,476 56,469 Taxes, other than on income........... 20,299 18,852 Depreciation and amortization......... 17,117 16,065 ---------- ---------- Total operating expenses............ 90,892 91,386 ---------- ---------- Net operating revenues.............. 25,843 19,209 ---------- ---------- Other income (expenses): Interest on long-term debt............ (17,554) (18,735) Other interest........................ (749) (1,494) Dividends on preferred securities of subsidiary trust.................... (4,740) -- Other, net............................ 2,370 1,631 ---------- ---------- Total other expenses, net........... (20,673) (18,598) Earnings before income taxes........ 5,170 611 Federal and state income taxes.......... 2,022 221 ---------- ---------- Net earnings available for common stock. $ 3,148 $ 390 ========== ========== Earnings per common share: Primary............................... $ .26 $ .03 ========== ========== Fully diluted......................... $ .25 $ .03 ========== ========== Weighted average shares outstanding: Primary............................... 12,107,537 12,024,593 ========== ========== Fully diluted......................... 12,461,328 12,310,092 ========== ========== See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED OPERATIONS Twelve Months Ended December 31, ----------------------- 1995 1994 ----------- ----------- (thousands of dollars, except shares and per share amounts) Operating revenues...................... $ 514,095 $ 486,306 Gas purchase costs...................... 269,811 260,732 ---------- ---------- Operating margin...................... 244,284 225,574 Operating expenses: Operating, maintenance and general.... 99,378 109,501 Taxes, other than on income........... 40,730 41,824 Depreciation and amortization......... 33,135 30,224 ---------- ---------- Total operating expenses............ 173,243 181,549 ---------- ---------- Net operating revenues.............. 71,041 44,025 ---------- ---------- Other income (expenses): Interest on long-term debt............ (36,268) (36,571) Other interest........................ (1,689) (1,846) Dividends on preferred securities of subsidiary trust.................... (5,899) -- Other, net............................ 4,417 3,151 ---------- ---------- Total other expenses, net........... (39,439) (35,266) ---------- ---------- Earnings before income taxes........ 31,602 8,759 Federal and state income taxes.......... 12,775 3,480 Net earnings available for common stock. $ 18,827 $ 5,279 ========== ========== Earnings per common share: Primary............................... $ 1.56 $ .44 ========== ========== Fully diluted......................... $ 1.52 $ .43 ========== ========== Weighted average shares outstanding: Primary............................... 12,094,150 12,017,422 ========== ========== Fully diluted......................... 12,402,366 12,324,525 ========== ========== See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET ASSETS December 31, June 30, ----------------------- 1995 1994 1995 ----------- ----------- ----------- (unaudited) (thousands of dollars) Property, plant and equipment: Plant in service...... $ 905,310 $ 845,882 $ 882,769 Construction work in progress............ 16,833 21,426 14,670 ---------- ---------- ---------- 922,143 867,308 897,439 Less accumulated depreciation and amortization........ (315,413) (287,960) (303,327) ---------- ---------- ---------- 606,730 579,348 594,112 Additional purchase cost assigned to utility plant, net.. 152,359 165,983 154,534 ---------- ---------- ---------- Net property, plant and equipment....... 759,089 745,331 748,646 ---------- ---------- ---------- Current assets: Cash and cash equiva- lents................. 820 -- 39,015 Short-term investments.. -- -- 19,582 Accounts receivable, billed and unbilled... 110,045 85,391 35,465 Inventories, principally stored gas............ 24,658 38,990 23,561 Deferred gas purchase costs due from custo- mers.................. 11,369 -- 7,641 Prepayments and other... 1,273 2,349 1,349 ---------- ---------- ---------- Total current assets.. 148,165 126,730 126,613 ---------- ---------- ---------- Deferred charges.......... 117,198 77,973 114,167 Real estate............... 10,495 10,866 10,742 Other..................... 2,754 1,820 2,334 ---------- ---------- ---------- Total................... $1,037,701 $ 962,720 $1,002,502 ========== ========== ========== See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (Continued) STOCKHOLDERS' EQUITY AND LIABILITIES December 31, June 30, ----------------------- 1995 1994 1995 ----------- ----------- ----------- (unaudited) (thousands of dollars) Common stockholders' equity: Common stock, $1 par value; authorized 50,000,000 shares; issued 12,212,184 shares.................. $ 12,212 $ 11,509 $ 11,570 Premium on capital stock.. 210,004 198,355 198,819 Less treasury stock, at cost................. (794) (794) (794) Retained earnings......... 7,940 390 16,069 ---------- ---------- ---------- Total common stockholders' equity.................. 229,362 209,460 225,664 Company-obligated manda- torily redeemable pre- ferred securities of subsidiary trust holding solely $103,093,000 principal amount of 9.48% subordinated notes of Southern Union due 2025... 100,000 -- 100,000 Long-term debt.............. 442,161 478,722 462,503 ---------- ---------- ---------- Total capitalization...... 771,523 688,182 788,167 Current liabilities: Long-term debt due within one year................ 782 956 770 Notes payable............. 13,000 44,000 -- Accounts payable.......... 46,644 48,712 28,784 Federal, state and local taxes................... 17,947 10,757 6,310 Accrued interest.......... 14,177 15,566 15,194 Customer deposits......... 15,333 13,938 14,166 Deferred gas purchase costs due to customers.. -- 23,125 -- Other..................... 18,500 15,846 13,621 ---------- ---------- ---------- Total current liabilities........... 126,383 172,900 78,845 ---------- ---------- ---------- Deferred credits and other liabilities......... 102,422 72,258 99,434 Accumulated deferred income taxes.............. 37,373 29,380 36,056 Commitments and con- tingencies................ -- -- -- ---------- ---------- ---------- Total..................... $1,037,701 $ 962,720 $1,002,502 See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES STATEMENT OF COMMON STOCKHOLDERS' EQUITY Common Premium Stock on Treasury $1 Par Capital Stock, Retained Value Stock at Cost Earnings Total ------- -------- -------- -------- -------- (thousands of dollars) Balance July 1, 1994.............. $11,497 $198,272 $ (794) $ -- $208,975 Net earnings...... -- -- -- 16,069 16,069 Exercise of stock options......... 73 547 -- -- 620 ------- -------- ------- ------- -------- Balance June 30, 1995.............. 11,570 198,819 (794) 16,069 225,664 Net earnings...... -- -- -- 3,148 3,148 Stock dividend.... 576 10,701 -- (11,277) -- Exercise of stock options......... 66 484 -- -- 550 ------- -------- ------- ------- -------- Balance December 31, 1995.............. $12,212 $210,004 $ (794) $ 7,940 $229,362 ======= ======== ======= ======= ======== See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS Three Months Ended December 31, -------------------- 1995 1994 --------- ---------- (thousands of dollars) Net cash flow from operating activities... $ 1,143 $ 15,797 -------- --------- Cash flow from (used in) investing activities: Additions to property, plant and equipment........................... (14,652) (22,316) Other, net............................ 1,080 378 -------- --------- Net cash flows used in investing activities........................ (13,572) (21,938) -------- --------- Cash flow from (used in) financing activities: Net borrowings under revolving credit facility..................... 13,000 2,600 Increase (decrease) in cash over- drafts.............................. (144) 1,725 Other, net............................ 393 (110) -------- --------- Net cash flows from financing activities........................ 13,249 4,215 -------- --------- Increase (decrease) in cash and cash equivalents............................. 820 (1,926) Cash and cash equivalents at beginning of period............................... -- 1,926 -------- --------- Cash and cash equivalents at end of period.................................. $ 820 $ -- -------- --------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest............................ $ 816 $ 733 ======== ========= Income taxes (refunded)............. $ 200 $ (22) ======== ========= See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS Six Months Ended December 31, -------------------- 1995 1994 --------- --------- (thousands of dollars) Net cash flow used in operating activities.. $(25,168) $(12,547) -------- -------- Cash flow from (used in) investing activities: Additions to property, plant and equipment............................. (28,712) (36,605) Acquisition of operations, net of cash received.............................. -- (1,072) Decrease in short-term investments, net. 19,582 -- Other, net.............................. 2,359 (1,096) -------- -------- Net cash flows used in investing activities.......................... (6,771) (38,773) -------- -------- Cash flow from (used in) financing activities: Net borrowings under revolving credit facility.............................. 13,000 44,000 Repayment of debt....................... (19,806) (381) Increase in cash overdrafts............. -- 1,725 Other, net.............................. 550 95 -------- -------- Net cash flows (used in) from financing activities................ (6,256) 45,439 -------- -------- Decrease in cash and cash equivalents....... (38,195) (5,881) Cash and cash equivalents at beginning of period................................. 39,015 5,881 -------- -------- Cash and cash equivalents at end of period.. $ 820 $ -- ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest.............................. $ 18,373 $ 19,231 ======== ======== Income taxes (refunded)............... $ (5,188) $ (18) ======== ======== See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED CASH FLOWS Twelve Months Ended December 31, --------------------- 1995 1994 ---------- ---------- (thousands of dollars) Net cash flow from operating activities.. $ 29,021 $ 88,630 --------- --------- Cash flow from (used in) investing activities: Additions to property, plant and equipment.......................... (59,549) (64,738) Acquisition of operations, net of cash received...................... -- (406,364) Collection of note receivable........ -- 6,000 Other, net........................... 2,435 (881) --------- --------- Net cash flows used in investing activities....................... (57,114) (465,983) --------- --------- Cash flow from (used in) financing activities: Net borrowings (payments) under revolving credit facility.......... (31,000) 23,900 Repayment of debt.................... (35,637) (107,227) Issuance of debt..................... -- 475,000 Premium on early extinguishment of debt............................ -- (13,715) Debt issuance costs.................. -- (5,439) Proceeds from issuance of preferred securities of subsidiary trust..... 100,000 -- Issuance cost of preferred securities of subsidiary trust..... (3,799) -- Increase in cash overdrafts.......... -- 1,725 Other, net........................... (651) 191 --------- --------- Net cash flows from financing activities....................... 28,913 374,435 --------- --------- Increase (decrease) in cash and cash equivalents............................ 820 (2,918) Cash and cash equivalents at beginning of period.............................. -- 2,918 --------- --------- Cash and cash equivalents at end of period................................. $ 820 $ -- ========= ========= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest........................... $ 38,373 $ 24,034 ========= ========= Income taxes (refunded)............ $ (2,620) $ 367 ========= ========= See accompanying notes to the consolidated financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FINANCIAL STATEMENTS The interim financial statements are unaudited but, in the opinion of management, reflect all adjustments necessary for a fair presen- tation of the results of operations for such periods. Because of the seasonal nature of the Company's operations, the results of operations for any interim period are not necessarily indicative of results for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto contained in Southern Union Company's ("Southern Union" or the "Company") Annual Report on Form 10-K for the fiscal year ended June 30, 1995. Certain prior period amounts have been reclassified to conform with the current period presentation. As described below, the Company acquired Missouri Gas Energy on January 31, 1994. Accordingly, the earnings from operations of Missouri Gas Energy are consolidated with the Company subsequent to that date. Thus the Company's consolidated results of operations for the twelve-month period ended December 31, 1994, which exclude Missouri Gas Energy's operations during the month of January 1994, are not indicative of results that would necessarily be achieved for a full year and thus comparability of the twelve-month periods ended December 31, 1995 and 1994 is impacted. Additionally, Missouri Gas Energy's rate structure collects a greater percentage of its operating margin in the winter heating season of which January historically contributes approximately 17% of the annual operating margin to the Missouri operations. Under the Company's cash management system, checks issued but not presented to banks frequently result in overdraft balances for accounting purposes and are classified in accounts payable in the consolidated balance sheet. ACQUISITION AND DIVESTITURE On January 31, 1994, the Company consummated the acquisition of Missouri Gas Energy (the "Missouri Acquisition") from Western Resources, Inc. ("Western Resources" or the "seller" of the Missouri properties) for $400,300,000 in cash, based on account balances as of December 31, 1993. The final purchase price, which was determined through post-closing adjustments and subsequent arbitra- tion, was approximately $401,600,000. The Missouri Acquisition was financed through the sale of $475,000,000 of 7.60% Senior Notes due 2024 (the "Senior Debt Securities") completed on January 31, 1994 and net proceeds from a $50,000,000 common stock subscription rights offering (the "Rights Offering") completed on December 31, 1993. See "Capitalization." The assets of Missouri Gas Energy were included in the Company's consolidated balance sheet at January 31, 1994 and earnings from the operations of Missouri Gas Energy have been included in the statements of con- solidated operations and cash flows since February 1, 1994. Missouri Gas Energy serves approximately 478,000 customers in central and western Missouri, including Kansas City, St. Joseph, Joplin and Monett. The acquisition was accounted for using the purchase method. The additional purchase cost assigned to utility plant of approximately $68,000,000 reflects the excess of the purchase price over the historical book carrying value of net assets acquired plus various accounting entries to record certain preacquisition contingencies. The additional purchase cost assigned to utility plant is amortized on a straight-line basis over forty years. On October 16, 1995, Southern Union Company entered into a purchase agreement to sell certain gas distribution operations of the Com- pany in the Texas and Oklahoma Panhandles and to sell Western Gas Interstate Company ("WGI"), a wholly-owned subsidiary of the Com- pany, exclusive of certain WGI assets in El Paso, Texas and WGI's Del Norte interconnect operation which transmits natural gas into Mexico, for approximately $14,700,000. The sale is subject to approval by the Federal Regulatory Energy Commission ("FERC") and the Oklahoma Corporation Commission and must be reported to the Railroad Commission of Texas. SOUTHERN UNION COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PREFERRED SECURITIES OF SUBSIDIARY TRUST On May 17, 1995, Southern Union Financing I (the "Subsidiary Trust"), a consolidated wholly-owned subsidiary of Southern Union, issued $100,000,000 of 9.48% Trust Originated Preferred Securities (the "Preferred Securities"). In connection with the Subsidiary Trust's issuance of the Preferred Securities and the related purchase by Southern Union of all of the Subsidiary Trust's common securities (the "Common Securities"), Southern Union issued to the Subsidiary Trust $103,092,800 principal amount of its 9.48% Sub- ordinated Deferrable Interest Notes, due 2025 (the "Subordinated Notes"). The sole assets of the Subsidiary Trust are and will be the Subordinated Notes. The interest and other payment dates on the Subordinated Notes correspond to the distribution and other payment dates on the Preferred Securities and the Common Securi- ties. Under certain circumstances, the Subordinated Notes may be distributed to holders of the Preferred Securities and holders of the Common Securities in liquidation of the Subsidiary Trust. The Subordinated Notes are redeemable at the option of the Company on or after May 17, 2000, at a redemption price of $25 per Subordinated Note plus accrued and unpaid interest. The Preferred Securities and the Common Securities will be redeemed on a pro rata basis to the same extent as the Subordinated Notes are repaid, at $25 per Preferred Security and Common Security plus accumulated and unpaid distributions. Southern Union's obligations under the Sub- ordinated Notes and related agreements, taken together, constitute a full and unconditional guarantee by Southern Union of payments due on the Preferred Securities. As of December 31, 1995, 4,000,000 shares of Preferred Securities were outstanding. CAPITALIZATION First mortgage bonds and other long-term debt outstanding, including current maturities, were as follows: December 31, June 30, 1995 1995 ------------ ---------- (thousands of dollars) First mortgage bonds: 11.5% due 2000 -- collateralized by certain utility plant in service... $ 1,200 $ 1,200 Other long-term debt: 7.60% Senior Notes due 2024.......... 440,000 460,000 Other................................ 1,743 2,073 --------- -------- Total debt........................... 442,943 463,273 Less current portion............... 782 770 --------- -------- Total long-term debt............. $ 442,161 $462,503 ========= ======== On July 20, 1995, $10,000,000 of Senior Debt Securities at $985 per $1,000 note were repurchased and on July 26, 1995, $10,000,000 at $963 per $1,000 note were repurchased with proceeds from the Preferred Securities. On January 31, 1994, Southern Union completed the sale of the Senior Debt Securities. The net proceeds from the sale of the Senior Debt Securities, together with the net proceeds from the Rights Offering and working capital from operations, were used to: (i) fund the Missouri Acquisition; (ii) repay approximately $59,300,000 of borrowings under the $100,000,000 revolving credit facility used to fund the Rio Grande Acquisition and repurchase all outstanding Preferred Stock; (iii) refinance, on January 31, 1994, $10,000,000 aggregate principal amount of 9.45% notes due January 31, 2004 and $25,000,000 aggregate principal amount of 10% notes due January 31, 2012 and the related premium of approximately $10,400,000 resulting from the early extinguishment of such notes; (iv) refinance, on March 2, 1994, $50,000,000 aggregate principal amount of 10.5% Sinking Fund Debentures due SOUTHERN UNION COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS May 15, 2017 and the related premium of approximately $3,300,000 resulting from the early extinguishment of such debentures; and (v) refinance, on May 16, 1994, $20,000,000 aggregate principal amount of 10-1/8% notes. STOCK DIVIDEND On November 27, 1995, Southern Union distributed its annual 5% common stock dividend to stockholders of record on November 15, 1995. A portion of the 5% stock dividend was characterized as a distribution of capital due to the level of the Company's retained earnings avail- able for distribution as of the declaration date. The 5% stock dividend is consistent with the Board of Directors' decision in February 1994 to commence regular stock dividends of approximately 5% annually. Unless otherwise stated, all per share data included in the accompanying consolidated financial statements and in these Notes to Consolidated Financial Statements has been restated to give effect to the stock dividend. UTILITY REGULATION AND RATES Pursuant to a 1989 Missouri Public Service Commission ("MPSC") order, Missouri Gas Energy is engaged in a major gas safety program in its service territories. This program includes replacement of company- and customer-owned gas service and yard lines, the move- ment and resetting of meters, the replacement of cast iron mains and the replacement and cathodic protection of bare steel mains (the "Missouri Safety Program"). In recognition of the significant capital expenditures associated with this safety program, the MPSC permits the deferral, and subsequent recovery through rates, of depreciation expense, property taxes and associated carrying costs, related to the Missouri Safety Program. Missouri Gas Energy was required to continue the Missouri Safety Program and has deferred depreciation expense, property taxes and carrying costs of approximately $1,780,000 and $3,364,000 for the three- and six- month periods, respectively, ended December 31, 1995. The continuation of the Missouri Safety Program will result in significant levels of future capital expenditures. The Company estimates incurring capital expenditures of approximately $20,000,000 in fiscal 1996 related to this program. Under the order of the FERC docket Nos. RP 94-296 and PR 95-3, Williams Natural Gas Company, a supplier of gas to Missouri Gas Energy, is allowed recovery of certain previously unrecovered deferred gas costs of approximately $27,600,000. These costs were related to gas deliveries prior to April 30, 1994. Missouri Gas Energy filed a mechanism to recover these costs under case GR 95-33 with the MPSC which was approved and allows recovery of these costs from its Missouri customers. The receivable and liability associated with these costs have been recorded as a deferred charge and a deferred credit, respectively, on the balance sheet as of December 31, 1995 and June 30, 1995. CONTINGENCIES Southern Union is aware of the possibility that it may become a defendant in an action brought by the United States Environmental Protection Agency ("EPA") under 42 U.S.C. Section 9607(a)for reimbursement of costs associated with removing hazardous sub- stances from the site of a former coal gasification plant (the "Pine Street Canal Site") in Burlington, Vermont. This knowledge arises out of the existence of a prior action, United States v. ---------------- Green Mountain Power Corp., et al, Civil No. 88-307 (D. Vt.), in - --------------------------------- which Southern Union became involved as a third-party defendant in January 1989. Green Mountain Power was an action under 42 U.S.C. Section 9607(a) by the federal government to recover clean-up costs associated with the "Maltex Pond", which is part of the Pine Street Canal Site. Two defendants in Green Mountain Power, Vermont Gas Systems and Green Mountain Power Corp., claimed that Southern Union is the corporate successor to People's Light and Power Corporation, an upstream corporate SOUTHERN UNION COMPANY AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS parent of Green Mountain Power Corp. during the years 1928-1931. Green Mountain Power was settled without admission or determination of liability with respect to Southern Union by order dated December 26, 1990. The EPA has since conducted studies of the clean-up costs for the remainder of the Pine Street Canal Site, but the ultimate costs are unknown at this time. On November 30, 1992, Southern Union was named as a potentially responsible party in a special notice letter from the EPA. The Company has denied liability for any clean-up costs for various reasons, including the fact that it is not a successor to any entity that owned or operated the site in question. Should Southern Union be made party to any action seeking recovery of remaining clean-up costs, the Company intends to vigorously defend against such an action. The Company has made demands of the appropriate insurers that they assume the defense of and liability for any such claim that may be asserted. The Company does not believe the outcome of this matter will have a material adverse effect on its financial position, results of operations or cash flows. Southern Union and Western Resources entered into an Environmental Liability Agreement (the "Environmental Liability Agreement") at the closing of the Missouri Acquisition. Subject to the accuracy of certain representations made by Western Resources in the Missouri Asset Purchase Agreement, the Environmental Liability Agreement provides for a tiered approach to the allocation of substantially all liabilities under environmental laws that may exist or arise with respect to Missouri Gas Energy. At the present time and based upon information available to management, the Company believes that the costs of any remediation efforts that may be required for these sites for which it may ultimately have responsibility will not exceed the aggregate amount subject to substantial sharing by Western Resources. On June 1, 1994 Southern Union filed a lawsuit in the United States District Court for the Western District of Missouri, against Western Resources. The primary subject of the lawsuit, and the only remaining issues in the litigation, are the Company's claims for damages against Western Resources for fraudulent misrepresenta- tion, breach of contract, breach of covenant and other grounds arising out of certain gas supply and transportation agreements with respect to the Missouri Acquisition. Southern Union is seeking damages in excess of $50,000,000. Trial by jury is currently scheduled for June 1996. Southern Union and its subsidiaries are parties to other legal proceedings that its management considers to be the normal kinds of actions to which an enterprise of its size and nature might be subject, and not to be material to the Company's overall business or financial condition, results of operations or cash flows. In the Missouri Acquisition, the Company assumed the Missouri por- tion of certain obligations related to a 1990 settlement of a Wyoming Tight Sands anti-trust claim. To secure the refund of the settlement proceeds, the MPSC authorized the establishment of an independently administered trust to collect cash receipts under the Tight Sands settlement and repay credit-facility borrowings used for the lump sum payment. In the event the trust does not receive cash payments from the gas suppliers as provided by the Tight Sands settlement agreements, the Company is committed to pay its applicable portion of the amount owed the lender of the credit- facility borrowings. The Company's allocable unpaid portion of the amount the trust owes the lender at December 31, 1995 was approxi- mately $7,500,000. SOUTHERN UNION COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Southern Union Company is engaged in various activities in the distribution of natural gas to residential, commercial, industrial, agricultural and other customers in communities throughout Texas, western Missouri and the Oklahoma panhandle. The Company's princi- pal line of business is the distribution of natural gas as a public utility through Southern Union Gas and Missouri Gas Energy, each of which is a division of the Company. In addition, the Company operates interstate and intrastate natural gas pipeline systems, markets natural gas to end-users, holds investments in real estate, and markets and sells natural gas for natural gas vehicles. Several of these business activities are subject to regulation by federal, state or local authorities where the Company operates. Thus, the Company's financial condition and results of operations have been and will continue to be dependent upon the receipt of adequate and timely adjustments in rates. In addition, the Com- pany's business is affected by seasonal weather impacts, competi- tive factors within the energy industry and economic development and residential growth in its service areas. On January 31, 1994, Southern Union completed the acquisition of Missouri Gas Energy (the "Missouri Acquisition"). Missouri Gas Energy serves approximately 478,000 customers in central and western Missouri, including Kansas City, St. Joseph, Joplin and Monett. The Missouri Acquisition was accounted for as a purchase and, accordingly, the operating results of Missouri Gas Energy have been included in the Company's consolidated operating results since the date of acquisition. See "Acquisition and Divestiture" in the Notes to Consolidated Financial Statements for the quarter ended December 31, 1995, included herein. In addition, since the majority of Missouri Gas Energy's operating margin is earned during the winter heating season, the results of operations for the twelve-month period ended December 31, 1994 are not indicative of results that would necessarily be achieved for a full year. For these reasons, the results of operations and cash flows of the Company for the periods subsequent to the Missouri Acquisition are not comparable to those periods prior to the acquisition nor are certain 1995 results of operations and cash flows comparable with previous periods. RESULTS OF OPERATIONS Three Months Ended December 31, 1995 and 1994 - --------------------------------------------- The Company recorded net earnings available for common stock of $8,746,000 for the three-month period ended December 31, 1995 com- pared with net earnings of $6,558,000 for the same period in 1994. Earnings per share, based on weighted average shares outstanding during the period, were $.72 in 1995 compared with earnings per share of $.55 in 1994. Operating revenues were $180,939,000 for the three-month period ended December 31, 1995, an increase of 22%, compared with operating revenues of $147,749,000 in 1994. Gas purchase costs for the three-month period ended December 31, 1995 were $106,602,000, an increase of 37%, compared with $77,634,000 in 1994. The Com- pany's operating revenues are affected by the level of sales volumes and by the pass-through of increases or decreases in the Company's gas purchase costs through its purchased gas adjustment clauses. The increase in both operating revenues and gas purchase costs between periods was primarily the result of an 18% increase in gas sales volume to 36,365 MMcf in 1995 from 30,804 MMcf in 1994. The increase in sales volume was due to improved sales results in nontraditional markets and colder weather in the three-month period ended December 31, 1995. Weather in Missouri, which includes the city of Kansas City, Missouri, was 101% of normal for the three-month period ended December 31, 1995, compared with 81% of normal in 1994. The Texas and Oklahoma service terri- tories, which include the Texas cities of Austin and El Paso, experienced weather that was only 92% of normal in 1995, compared with 79% of normal in 1994. Operating revenues and gas purchase costs were also affected by an increase in the average cost of gas from $2.52 per Mcf in 1994 to $2.93 per Mcf in 1995. The increase in the average cost of gas primarily is the result of increases in average spot market gas prices throughout the company's distribution system as a result of seasonal impacts on demands for natural gas and the ensuing competitive pricing within the industry. SOUTHERN UNION COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Operating margin (operating revenues less gas purchase costs) for the three-month period ended December 31, 1995 was $74,337,000 compared to $70,115,000 in 1994. The increase in operating margin is the result of increased gas sales volumes, discussed above. Operating expenses, which include operating, maintenance and general expenses, taxes other than on income, and depreciation and amortization, were $50,075,000 for the three-month period ended December 31, 1995, a decrease of $189,000, compared with $50,264,000 in 1994. The decrease is primarily a result of decreases in operating, maintenance and general expenses resulting from a decrease in payroll and related benefit costs due to a reduction in employees and other cost-cutting measures. Off- setting this decrease was a 22% increase in revenue-related taxes as a result of increased operating revenues, previously discussed, and a $466,000 increase in depreciation and amortization due to significant software additions in late 1994. Dividends on preferred securities of subsidiary trust were $2,370,000 for the three-month period ended December 31, 1995, compared with nil in 1994. The dividends on preferred securities of subsidiary trust for the three-month period ended December 31, 1995 is the result of the issuance of $100,000,000 of 9.48% Trust Originated Preferred Securities ("Preferred Securities") on May 17, 1995, by Southern Union Financing I, a consolidated wholly-owned subsidiary of Southern Union. See "Preferred Securities of Sub- sidiary Trust" in the Notes to the Consolidated Financial State- ments for the quarter ended December 31, 1995. Interest expense was $9,165,000 for the three-month period ended December 31, 1995, a decrease of 11%, compared to $10,326,000 in 1994. The decrease in interest expense is due to the repurchase of $35,000,000, of the Company's outstanding 7.60% Senior Notes during June and July 1995 with the net proceeds from the Preferred Securities, discussed above. In addition, the net proceeds from the Preferred Securities provided working capital for operations for the company, allowing for less borrowings on the company's revolving credit facility during the three-month period ended December 31, 1995 as compared to the same period in 1994. See "Capitalization" in the Notes to the Consolidated Financial Statements for the quarter ended December 31, 1995. Other income for the three-month period ended December 31, 1995 was $949,000, compared with $410,000 in 1994. Other income for the three-month period ended December 31, 1995 consists of approxi- mately $1,258,000 related to the deferral of interest expense associated with the Missouri Gas Energy Safety Program and approximately $345,000 of net rental income from Lavaca Realty Company ("Lavaca Realty"), the Company's real estate subsidiary, which was partially offset by estimated closing and liquidation costs of approximately $500,000 in connection with the closing of the Natural Gas Vehicle Technology Centers, L.L.P. (the "Tech Center"). The Tech Center is a joint venture between Econofuel Company ("Econofuel"),a wholly-owned subsidiary of the Company, and Natural Gas Development Company, Inc. of California. Other income for 1994 included net rental income from Lavaca Realty of approximately $341,000, approximately $616,000 related to the deferral of interest expense associated with the Missouri Gas Energy Safety Program and approximately $155,000 from gas appli- ance merchandising. This was partially offset by a $750,000 write-down to estimated fair market value of certain Lavaca Realty real estate held for sale. SOUTHERN UNION COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For the three-month period ended December 31, 1995, federal and state income taxes increased $1,553,000, or 46%, over the same period in 1994 due primarily to an increase in pre-tax earnings as discussed above. The Company's consolidated federal and state effective income tax rate was 36% for the three months ended December 31, 1995 compared with 34% in 1994. Six Months Ended December 31, 1995 and 1994 - ------------------------------------------- The Company recorded net earnings available for common stock of $3,148,000 for the six-month period ended December 31, 1995 com- pared with net earnings of $390,000 for the six-month period ended December 31, 1994. Earnings per share, based on weighted average shares outstanding during the period, were $.26 in 1995 compared with earnings per share of $.03 in 1994. Operating revenues were $251,166,000 for the six-month period ended December 31, 1995, an increase of 16%, compared with operating revenues of $217,054,000 in 1994. Gas purchase costs for the six- month period ended December 31, 1995 were $134,431,000, an increase of 26%, compared with $106,459,000 in 1994. Both operating revenues and gas purchase costs increased in the six- month period ended December 31, 1995 as a result of a 15% increase in gas sales volume from 42,449 MMcf in 1994 to 48,788 MMcf in 1995 and an increase in the average cost of gas to $2.76 per Mcf in 1995 from $2.51 per Mcf in 1994. The increase in volumes is principally due to growth in pipeline and marketing sales, increases in the residential customer base, improved sales results in nontraditional markets and cooler weather experienced during the six-month period ended December 31, 1995 compared with 1994. Weather for the Texas and Oklahoma territories for the six-month period ended December 31, 1995 was 94% of normal compared to 79% of normal weather in 1994. Missouri Gas Energy's service territories experienced 103% of normal weather for the six months ended December 31, 1995 compared to only 82% of normal weather in 1994. Operating margin for the six-month period ended December 31, 1995 was $116,735,000, compared with $110,595,000 in 1994. The increase in operating margin is the result of increased gas sales volumes due principally to colder weather experienced throughout the company's service territories for the six-month period ended December 31, 1995 compared with 1994, discussed above. Operating expenses, which include operating, maintenance and general expenses, taxes other than on income, and depreciation and amortization, were $90,892,000 for the six-month period ended December 31, 1995, a decrease of $494,000, compared with $91,386,000 in 1994. The decrease is primarily a result of decreases in operating, maintenance and general expenses resulting from a decrease in payroll and related benefits due to a reduction in employees and other cost-cutting measures. Offsetting this decrease was an 15% increase in revenue-related taxes as a result of increased operating revenues, previously discussed, and a $1,052,000 increase in depreciation and amortization due to significant software additions in late 1994. Interest expense was $18,303,000 for the six-month period ended December 31, 1995, a decrease of 10%, compared with $20,229,000 in 1994. The decrease in interest expense is due to the repurchase of $35,000,000 of 7.60% Senior Notes in July, 1995 and reduced short- term borrowings on the company's revolving credit facility during the six-month period ended December 31, 1995 as compared to the same period in 1994, previously discussed. See "Capitalization" in the Notes to the Consolidated Financial Statements for the quarter ended December 31, 1995. Dividends on preferred securities of subsidiary trust were $4,740,000 for the six-month period ended December 31, 1995, com- pared with nil in 1994, previously discussed. See "Preferred Securities of Subsidiary Trust" in the Notes to the Consolidated Financial Statements for the quarter ended December 31, 1995. SOUTHERN UNION COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Other income for the six-month period ended December 31, 1995 was $2,370,000 compared with $1,631,000 in 1994. Other income for the six-month period ended December 31, 1995 included approximately $2,277,000 related to the deferral of interest expense associated with the Missouri Gas Energy Safety Program and net rental income from Lavaca Realty of approximately $690,000. This was partially offset by estimated costs of $500,000 to close Econofuel's Tech Center, previously discussed. Other income for the six-month period ended December 31, 1994 included net rental income from Lavaca Realty of approximately $667,000; approximately $976,000 related to the deferral of interest expense associated with the Missouri Gas Energy Safety Program; approximately $249,000 from gas appliance merchandising; and investment interest and interest on notes receivable of approximately $195,000. This was partially offset by approximately $750,000 for the write- down of certain real estate, as discussed above. For the six-month period ended December 31, 1995, federal and state income taxes increased $1,801,000 over the same period in 1994 due primarily to improved pre-tax earnings as discussed above. The Company's consolidated federal and state effective income tax rate was 39% for the six months ended December 31, 1995 compared with 36% in 1994. Twelve Months Ended December 31, 1995 and 1994 - ---------------------------------------------- The Company recorded net earnings available for common stock of $18,827,000 for the twelve-month period ended December 31, 1995 compared with net earnings of $5,279,000 in 1994. Earnings per share, based on weighted average shares outstanding during the period, were $1.56 in 1995 compared with earnings per share of $.44 in 1994. Because of the acquisition of Missouri Gas Energy on January 31, 1994, the income from operations of Missouri Gas Energy are consolidated with the Company subsequent to that date. Thus, the results of operations for the twelve- month period ended December 31, 1994 are not indicative of results that would necessarily be achieved for a full year since the majority of the company's operating margin is earned during the winter heating season. Operating revenues were $514,095,000 for the twelve-month period ended December 31, 1995, an increase of 6%, compared with operating revenues of $486,306,000 in 1994. Gas purchase costs for the twelve-month period ended December 31, 1995 were $269,811,000, an increase of 3%, compared with gas purchase costs of $260,732,000 in 1994. Operating revenues increased during the twelve-month period ended December 31, 1995 as a result of an 11% increase in gas sales volume from 99,815 MMcf in 1994 to 110,525 MMcf in 1995. The increase in volumes is principally due to a 5% increase in the average annual customer base to approximately 965,000 customers for the twelve months ended December 31, 1995 compared with an average annual customer base of approximately 915,000 in 1994 as a result of the Missouri Acquisition on January 31, 1994. Gas purchase costs were affected by the increase in sales volume but was partially offset by a decrease in the average cost of gas to $2.44 per Mcf in 1995 from $2.61 per Mcf in 1994 as a result of spot market prices. Operating revenues and gas purchase costs were also slightly impacted by colder weather conditions in late calendar year 1995. Weather for the Texas and Oklahoma opera- tions for the twelve-month period ended December 31, 1995 was 88% of normal compared with 84% of normal weather in 1994. Missouri Gas Energy's service territories experienced 99% of normal weather for the twelve-month period ended December 31, 1995 compared with 87% of normal weather in 1994. Missouri Gas Energy contributed operating revenues and gas purchase costs of $305,980,000 and $173,183,000, respectively for the twelve-month period ended December 31, 1995 compared with $261,342,000 and $148,661,000, respectively, in 1994. The remaining operations of the Company were responsible for a decrease in both operating revenue of $16,849,000 and gas purchase costs of $15,443,000, primarily due to a reduction in volumes resulting from the warmer than normal weather in early calendar year 1995 as compared with 1994 and a decrease in the average cost per Mcf of gas, both previously discussed. Operating margin for the twelve-month period ended December 31, 1995 was $244,284,000 compared with $225,574,000 in 1994. The increase in operating margin resulted primarily from the Missouri Acquisition which contributed approximately $20,116,000 to the overall increase in operating margin. In addition, effective SOUTHERN UNION COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS October 15, 1993, the MPSC increased Missouri Gas Energy's natural gas rates by $9,750,000 annually. Due to the timing of the closing of the Missouri Acquisition on January 31, 1994, the Company's results of operations for the twelve months ended December 31, 1994 do not include the full effect of this rate increase. Operating expenses, which include operating, maintenance and general expenses, taxes other than on income and depreciation and amortization, were $173,243,000 for the twelve-month period ended December 31, 1995, a decrease of 5%, compared with operating expenses of $181,549,000 in 1994. The decrease in these expenses is principally due to the overall decrease in operating expenses attributable to operating efficiencies achieved since the Missouri Acquisition of approximately $3,853,000. The remaining operations of the Company were responsible for a decrease in operating expenses of approximately $4,453,000 as a result of ongoing efforts to reduce costs and improve efficiencies. Interest expense on long-term debt was $36,268,000 for the twelve- month period ended December 31, 1995, a decrease of $303,000, compared with $36,571,000 in 1994. The decrease in interest expense is the result of the issuance of $100,000,000 of Preferred Securities on May 17, 1995, which was used to repur- chase $35,000,000 of outstanding 7.60% Senior Notes during June and July 1995. Additionally, the proceeds from the 7.60% Senior Notes issued on January 31, 1994 were used to retire $105,000,000 in various higher interest debentures and notes. See "Capitalization" in the Notes to the Consolidated Financial Statements for the quarter ended December 31, 1995 included herein. Dividends on preferred securities of subsidiary trust were $5,899,000 for the twelve-month period ended December 31, 1995, compared with nil in 1994, previously discussed. See "Preferred Securities of Subsidiary Trust" in the Notes to the Consolidated Financial Statements for the quarter ended December 31, 1995. Other income for the twelve-month period ended December 31, 1995 was $4,417,000 compared with $3,151,000 in 1994. Other income for the twelve-month period ended December 31, 1995 included approxi- mately $3,920,000 related to the deferral of interest expense associated with the Missouri Gas Energy Safety Program and net rental income from Lavaca Realty of approximately $1,425,000. This was partially offset by estimated costs of $500,000 to close Econofuel's Tech Center, previously discussed. Other income for the twelve-month period ended December 31, 1994 included net rental income from Lavaca Realty of approximately $1,262,000; approximately $1,253,000 related to the deferral of interest expense associated with the Missouri Gas Energy Safety Program; investment interest and interest on notes receivable of approximately $732,000; and approximately $403,000 from gas appliance merchandising. This was partially offset by other expense of $750,000 to record the write-down of certain real estate, discussed above. For the twelve-month period ended December 31, 1995, federal and state income taxes increased $9,295,000 over the same period in 1994 due primarily to improved pre-tax earnings as discussed above. The Company's consolidated federal and state effective income tax rate was 40% for both the twelve-month periods ended December 31, 1995 and 1994. SOUTHERN UNION COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth certain information regarding the Company's gas utility operations for the three- and twelve-month periods ended December 31, 1995 and 1994: Three Months Twelve Months Ended December 31, Ended December 31, 1995 1994 1995(a) 1994(a) -------- -------- -------- -------- Average number of gas sales customers served: Residential........... 872,891 866,797 871,261 828,839 Commercial............ 88,457 87,311 89,434 82,542 Industrial and irrigation.......... 703 637 705 756 Public authorities and other........... 2,765 2,796 2,791 2,695 Pipeline and marketing........... 539 387 513 409 -------- -------- -------- -------- Total average customers served.. 965,355 957,928 964,704 915,241 ======== ======== ======== ======== Gas sales in millions of cubic feet (MMcf) Residential........... 16,794 14,820 64,901 56,729 Commercial............ 7,579 6,648 29,695 25,947 Industrial and irrigation.......... 598 611 2,292 2,077 Public authorities and other........... 605 725 3,147 2,740 Pipeline and marketing........... 3,066 1,809 9,478 7,592 -------- -------- -------- -------- Gas sales billed.... 28,642 24,613 109,513 95,085 Net change in unbilled gas sales.. 7,723 6,191 1,012 4,730 -------- -------- -------- -------- Total gas sales..... 36,365 30,804 110,525 99,815 ======== ======== ======== ======== Gas sales revenues (thousands of dollars): Residential........... $ 91,958 $ 72,820 $325,228 $305,910 Commercial............ 36,128 27,845 127,005 118,381 Industrial and irrigation.......... 2,286 1,813 8,752 8,283 Public authorities and other........... 2,046 2,305 7,639 10,031 Pipeline and marketing........... 6,470 3,952 19,365 17,636 -------- -------- -------- -------- Gas revenues billed. 138,888 108,735 487,989 460,241 Net change in unbilled gas sales revenues............ 34,272 27,634 7,129 17,968 -------- -------- -------- -------- Total gas sales revenues.. $173,160 $136,369 $495,118 $478,209 ======== ======== ======== ======== Gas sales margin (thousands of dollars).. $ 66,558 $ 58,735 $225,307 $217,477 ======== ======== ======== ======== Gas sales revenue per thousand cubic feet (Mcf) billed: Residential........... $ 5.476 $ 4.914 $ 5.011 $ 5.392 Commercial............ 4.767 4.188 4.277 4.562 Industrial and irrigation.......... 3.825 2.967 3.819 3.988 Public authorities and other........... 3.383 3.179 2.428 3.661 Pipeline and marketing........... 2.110 2.185 2.043 2.323 Weather effect: Degree days: Texas and Oklahoma service territories. 720 606 1,792 1,663 Missouri service territories......... 1,980 1,594 5,206 3,574 Percent of normal, based on 30-year average: Texas and Oklahoma service territories....... 92% 79% 88% 84% Missouri service territories....... 101% 81% 99% 87% Gas transported in millions of cubic feet (MMcf)............. 15,542 16,864 52,834 56,043 Gas transportation revenues (thousands of dollars)............. $ 5,268 $ 4,546 $ 15,346 $ 14,299 - -------------------- (a) Missouri Gas Energy, a division of Southern Union, was acquired on January 31, 1994 and its results of operations were included in the Company's consolidated results of operations beginning February 1, 1994. For this reason, the consolidated results of operations of the Company for the period subsequent to the acquisition are not comparable to prior periods. SOUTHERN UNION COMPANY AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION The Company's gas utility operations are seasonal in nature with a significant percentage of the annual revenues and earnings occurring in the traditional heating-load months. This seasonality results in a high level of cash flow needs during the peak winter heating season months, resulting from the required payments to natural gas suppliers in advance of the receipt of cash payments from the Company's customers. The Company has historically used internally generated funds and its revolving loan and credit facilities to provide funding for its seasonal working capital, continuing construction and maintenance programs and operational requirements. The principal sources of funds during the three-month period ended December 31, 1995 included approximately $13,000,000 from the Com- pany's available credit facility and $1,143,000 in cash flow from operations. These sources provided funds for additions to property, plant and equipment of approximately $14,652,000 and other working capital needs of the Company. The principal sources of funds during the six-month period ended December 31, 1995 included approximately $13,000,000 from the Com- pany's available credit facility and approximately $19,582,000 from the maturity of short-term investments. These sources, along with beginning cash balances of $39,015,000, provided funds for addi- tions to property, plant and equipment of approximately $28,712,000, the repayment of long-term debt of approximately $19,806,000 and provided other seasonal working capital needs of the Company. The beginning cash balances resulted from the May 17, 1995 Preferred Securities offering discussed below. The effective interest rate under the Company's current debt structure is approximately 7.8% (including interest and the amortization of debt issuance costs and redemption premiums on refinanced debt). The Company has availability under a $100,000,000 revolving credit facility with a three-year term (the "Revolving Credit Facility") underwritten by Texas Commerce Bank, N. A. and syndicated to four additional banks. Borrowings under the Revolving Credit Facility are available for Southern Union's working capital, letter of credit requirements and other general corporate purposes. At June 30, 1995 the outstanding balance under the Revolving Credit Facility was nil. The amount outstanding under the Revolving Credit Facility at December 31, 1995 and February 2, 1996 was approximately $13,000,000 and $20,800,000, respectively. On May 17, 1995, Southern Union Financing I (the "Subsidiary Trust"), a consolidated wholly-owned subsidiary of Southern Union, issued $100,000,000 of 9.48% Trust Originated Preferred Securities (the "Preferred Securities"). In connection with the Subsidiary Trust's issuance of the Preferred Securities and the related pur- chase by Southern Union of all of the Subsidiary Trust's common securities, Southern Union issued to the Subsidiary Trust $103,092,800 principal amount of its 9.48% Subordinated Deferrable Interest Notes, due 2025. The issuance of the Preferred Securities was part of a $300,000,000 shelf registration filed with the Securities and Exchange Commission on March 29, 1995. Southern Union may sell a combination of preferred securities of financing trusts and senior and subordinated debt securities of Southern Union of approximately $200,000,000 (the remaining shelf) from time to time at prices determined at the time of any offering. The net proceeds from the $100,000,000 Preferred Securities offering have been used to repurchase $35,000,000 of 7.60% Senior Debt Securities in June and July, 1995 and have provided working capital for seasonal needs. SOUTHERN UNION COMPANY AND SUBSIDIARIES RESULTS OF VOTES OF SECURITY HOLDERS Southern Union held its Annual Meeting of Stockholders on November 7, 1995. The following matters were submitted for a vote and approved by Southern Union's security holders: (i) the election of four persons to serve as the Class II directors until the 1998 Annual Meeting of Stockholders or until their successors are duly elected and qualified and (ii) approval of a proposal to increase employee contributions subject to Company matching from two percent to five percent under the Southern Union Company Supplemental Deferred Compensation Plan. The number of votes cast in favor, abstain or withheld for each nominee for director, and for any proposal voted on at the Annual Meeting of Stockholders, were: For Abstain Withheld ---------- ------- -------- Election of nominees as Class II Directors: Aaron I. Fleischman........ 10,609,661 -- 65,913 Kurt A. Gitter, M.D........ 10,604,264 -- 71,310 Adam M. Lindemann.......... 10,613,175 -- 62,399 George Rountree, III....... 10,609,578 -- 65,996 Proposal to increase employee contributions subject to Com- pany matching from two per- cent to five percent under the Southern Union Company Supplemental Deferred Com- pensation Plan............... 10,618,834 10,962 36,309 SOUTHERN UNION COMPANY AND SUBSIDIARIES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SOUTHERN UNION COMPANY ---------------------- (Registrant) Date February 9, 1996 By RONALD J. ENDRES ---------------- ---------------- Ronald J. Endres Senior Vice President of Administration, and Chief Financial Officer Date February 9, 1996 By DAVID J. KVAPIL ---------------- --------------- David J. Kvapil Vice President and Controller (Principal Accounting Officer) EX-11 2 SOUTHERN UNION COMPANY AND SUBSIDIARIES COMPUTATION OF PER SHARE EARNINGS Exhibit 11 Three Months Six Months Twelve Months Ended Ended Ended December 31, December 31, December 31, --------------- --------------- --------------- 1995 1994 1995 1994 1995 1994 ------- ------- ------- ------- ------- ------- (in thousands of dollars, except per share amounts) Net earnings available for common stock.. $ 8,746 $ 6,558 $ 3,148 $ 390 $18,827 $ 5,279 ======= ======= ======= ======= ======= ======= Primary earnings per share: Average shares out- standing.. 12,121 12,028 12,108 12,025 12,094 12,017 ======= ======= ======= ======= ======= ======= Primary earnings per share. $ .72 $ .55 $ .26 $ .03 $ 1.56 $ .44 ======= ======= ======= ======= ======= ======= Fully diluted earnings per share: Average shares out- standing.. 12,121 12,028 12,108 12,025 12,094 12,017 Stock options issued or granted... 427 283 353 285 308 308 ------- ------- ------- ------- ------- ------- Average shares out- standing.. 12,548 12,311 12,461 12,310 12,402 12,325 ======= ======= ======= ======= ======= ======= Fully diluted earnings per share. $ .70 $ .53 $ .25 $ .03 $ 1.52 $ .43 ======= ======= ======= ======= ======= ======= - ------------------ Note: All periods have been adjusted for each of the 5% stock dividends distributed on November 27, 1995 and on June 30, 1994 and the three-for-two stock split distributed in the form of a 50% stock dividend on March 9, 1994. EX-27 3
UT JUN-30-1995 DEC-31-1995 6-MOS PER-BOOK $ 759,089,000 $ 10,495,000 $ 148,165,000 $ 117,198,000 $ 2,754,000 $1,037,701,000 $ 12,212,000 $ 210,004,000 $ 7,940,000 $ 229,362,000 $ 0 $ 100,000,000 $ 442,161,000 $ 13,000,000 $ 0 $ 0 $ 782,000 $ 0 $ 0 $ 0 $ 251,602,000 $1,037,701,000 $ 251,166,000 $ 2,022,000 $ 53,476,000 $ 90,892,000 $ 25,843,000 $ 2,370,000 $ 21,451,000 $ 18,303,000 $ 3,148,000 $ 0 $ 3,148,000 $ 0 $ 0 $ (25,168,000) $ .26 $ .25
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