8-K 1 form8k1-03.txt FORM 8-K 01/03 (EARNINGS RELEASE) ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 ---------------------------------- FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) October 31, 2002 SOUTHERN UNION COMPANY (Exact name of registrant as specified in its charter) Delaware 1-6407 75-0571592 (State or other jurisdiction (Commission File Number) (I.R.S. Employer of incorporation) Identification No.) One PEI Center 18711 Wilkes-Barre, Pennsylvania (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (570) 820-2400 ================================================================================ ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibit No. ----------- 99.a Press Release issued by Southern Union Company dated October 31, 2002. ITEM 9. REGULATION FD DISCLOSURE On October 31, 2002 Southern Union Company (the Company) will release summary financial information to the general public, including the investment community, regarding the Company's operating performance for the three- and twelve-month periods ended September 30, 2002 and 2001. The financial information released is included herein. The following information is summary in nature and should not be considered complete financial statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) Three Months Ended Twelve Months Ended September 30, September 30, ------------------------- ------------------------- 2002 2001 2002 2001 ------------ ------------ ------------ ------------ (thousands of dollars, except shares and per share amounts) Operating revenues...... $ 147,399 $ 173,969 $ 1,263,980 $ 1,962,314 Cost of gas and other energy................ (66,183) (92,987) (736,763) (1,383,203) Revenue-related taxes... (5,132) (6,032) (46,225) (69,755) ----------- ----------- ----------- ----------- Operating margin.... 76,084 74,950 480,992 509,356 Operating expenses: Operating, mainte- nance and general. 52,762 53,104 220,901 255,639 Business restruc- turing charges.... -- 32,706 (1,394) 32,706 Depreciation and amortization...... 18,862 21,877 74,161 92,897 Taxes, other than on income and revenues.......... 8,137 8,309 28,386 33,309 ----------- ----------- ----------- ----------- Total operating expenses...... 79,761 115,996 322,054 414,551 ----------- ----------- ----------- ----------- Net operating revenues...... (3,677) (41,046) 158,938 94,805 ----------- ----------- ----------- ----------- Other income (expenses): Interest ........... (21,196) (27,159) (85,762) (114,372) Dividends on pre- ferred securities of subsidiary trust............. (2,370) (2,370) (9,480) (9,480) Other, net.......... 16,835 23,596 7,607 105,928 ----------- ----------- ----------- ----------- Total other expenses, net. (6,731) (5,933) (87,635) (17,924) ----------- ----------- ----------- ----------- Earnings (loss) before income taxes (benefit)..... (10,408) (46,979) 71,303 76,881 Federal and state income taxes (benefit)....... (3,913) (16,576) 27,771 36,025 ----------- ----------- ----------- ----------- Net earnings (loss) available for (attributable to) common stock.......... $ (6,495) $ (30,403) $ 43,532 $ 40,856 =========== =========== =========== =========== Diluted earnings (loss) per share............. $ (.12) $ (.55) $ .78 $ .70 =========== =========== =========== =========== Weighted average shares outstanding - diluted. 53,813,963 55,051,249 56,078,668 58,349,604 =========== =========== =========== =========== See Notes to Condensed Consolidated Financial Statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) ASSETS September 30, June 30, ----------------------- ---------- 2002 2001 2002 ---------- ---------- ---------- (thousands of dollars) Property, plant and equipment: Utility plant, at cost.............. $2,301,116 $2,228,669 $2,277,899 Less accumulated depreciation and amortization...................... (838,741) (784,713) (821,539) ---------- ---------- ---------- Net property, plant and equipment..................... 1,462,375 1,443,956 1,456,360 ---------- ---------- ---------- Current assets: Cash and cash equivalents........... 985 -- -- Accounts receivable, billed and unbilled, net..................... 94,337 139,148 122,224 Inventories, principally at average cost.............................. 139,193 173,729 103,001 Deferred gas purchase costs......... 14,699 65,582 -- Investment securities available for sale.............................. 414 8,052 1,163 Prepayments and other............... 11,745 12,874 14,091 ---------- ---------- ---------- Total current assets............ 261,373 399,385 240,479 ---------- ---------- ---------- Goodwill, net ........................ 713,390 721,252 713,390 Deferred charges...................... 217,238 203,336 210,263 Investment securities, at cost........ 9,786 19,226 9,786 Real estate........................... -- 2,474 -- Other................................. 46,151 39,267 46,189 ---------- ---------- ---------- Total assets.................... $2,710,313 $2,828,896 $2,676,467 ========== ========== ========== CAPITALIZATION AND LIABILITIES Capitalization: Common stockholders' equity......... $ 679,917 $ 677,459 $ 685,364 Preferred stock of subsidiary trust, $25 par........................... 100,000 100,000 100,000 Long-term debt and capital lease obligation........................ 1,049,079 842,866 1,082,210 ---------- ---------- ---------- Total capitalization............ 1,828,996 1,620,325 1,867,574 ---------- ---------- ---------- Current liabilities: Long-term debt due within one year.. 98,316 490,470 108,203 Notes payable....................... 230,700 193,000 131,800 Accounts payable.................... 63,888 90,025 86,540 Federal, state and local taxes...... 4,297 13,767 9,212 Accrued dividends on preferred stock of subsidiary trust......... -- 2,370 2,370 Other............................... 91,596 99,771 88,227 ---------- ---------- ---------- Total current liabilities....... 488,797 889,403 426,352 ---------- ---------- ---------- Deferred credits and other liabilities......................... 392,520 319,168 382,541 Commitments and contingencies......... -- -- -- ---------- ---------- ---------- Total capitalization and liabilities................... $2,710,313 $2,828,896 $2,676,467 ========== ========== ========== See Notes to Condensed Consolidated Financial Statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 -- BASIS OF PRESENTATION: The condensed consolidated financial statements have been prepared by Southern Union Company (the Company) and certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted. The condensed consolidated financial statement presentation in this report will produce the same net income as the consolidated financial statements and, in management's opinion, is a fair representation of the operations of the Company. NOTE 2 -- OTHER INCOME (EXPENSE), NET Other income for the three-month period ended September 30, 2002 was $16,835,000 compared to $23,596,000 in 2001. Other income for the three-month period ended September 30, 2002 includes a gain of $17,500,000 on the settlement of claims against Southwest Gas Corporation ("Southwest") relating to the Company's attempts to purchase Southwest. This gain was partially offset by $2,131,000 of related legal costs. Other income for the three-month period ended September 30, 2001 includes gains of $17,166,000 generated through the settlement of several interest rate swaps, a gain of $4,653,000 realized through the sale of marketing contracts held by PG Energy Services Inc. and $1,905,000 of interest and dividend income. These items were partially offset by $1,606,000 of legal costs associated with Southwest. Other income for the twelve-month period ended September 30, 2002 was $7,607,000 compared to $105,928,000 in 2001. Other income for the twelve-month period ended September 30, 2002 includes a gain of $17,500,000 on the settlement of claims against Southwest, previously discussed, the recognition of $5,997,000 in previously recorded deferred income related to financial derivative energy trading activity of a wholly-owned subsidiary, income of $2,206,000 generated from the sale and/or rental of gas-fired equipment and appliances by various operating subsidiaries and a gain of $1,203,000 realized through the sale of the propane assets of PG Energy Services Inc. These items were partially offset by a non-cash charge of $10,380,000 to reserve for the impairment of the Company's investment in a technology company and $9,625,000 of legal costs associated with Southwest. Other income for the twelve-month period ended September 30, 2001 includes realized gains of $74,582,000 on the sale of a portion of Southern Union's holdings in Capstone Turbine Corporation, a gain of $17,166,000 from interest rate swap settlements, previously discussed, a $13,532,000 gain on the sale of non-core real estate, interest and dividend income of $8,831,000 and a gain of $4,653,000 from the sale of marketing contracts, also previously discussed. These items were partially offset by $12,420,000 of legal costs associated with Southwest and $2,489,000 of non-cash trading losses. SOUTHERN UNION COMPANY AND SUBSIDIARIES SELECTED STATISTICAL DATA The following table sets forth certain information regarding the Company's gas utility operations for the three- and twelve-month periods ended September 30, 2002 and 2001: Three Months Twelve Months Ended September 30, Ended September 30, ---------------------- ---------------------- 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Average number of gas sales customers served: Residential............ 1,329,178 1,313,526 1,337,112 1,328,356 Commercial............. 130,178 125,102 130,254 128,480 Industrial and irrigation........... 1,020 4,237 3,462 4,310 Public authorities and other................ 3,346 3,156 3,238 3,162 ---------- ---------- ---------- ---------- Total average cus- tomers served.... 1,463,722 1,446,021 1,474,066 1,464,308 ========== ========== ========== ========== Gas sales in millions of cubic feet (MMcf) Residential............ 6,828 6,960 91,434 109,468 Commercial............. 3,825 3,675 36,713 44,324 Industrial and irrigation........... 838 1,009 4,490 5,440 Public authorities and other................ 267 245 2,682 3,201 ---------- ---------- ---------- ---------- Gas sales billed... 11,758 11,889 135,319 162,433 Net change in unbilled gas sales............ (148) 394 (570) (170) ---------- ---------- ---------- ---------- Total gas sales.... 11,610 12,283 134,749 162,263 ========== ========== ========== ========== Gas sales revenues (thousands of dollars): Residential............ $ 85,126 $ 96,788 $ 832,340 $1,155,138 Commercial............. 31,574 36,186 289,622 429,417 Industrial and irrigation........... 5,176 7,713 32,440 46,198 Public authorities and other................ 1,678 1,599 15,111 26,346 ---------- ---------- ---------- ---------- Gas revenues billed........... 123,554 142,286 1,169,513 1,657,099 Net change in unbilled gas sales revenues... 1,954 3,374 (7,798) 4,807 ---------- ---------- ---------- ---------- Total gas sales revenues......... $ 125,508 $ 145,660 $1,161,715 $1,661,906 ========== ========== ========== ========== Gas sales revenue per thousand cubic feet billed: Residential............ $ 12.47 $ 13.91 $ 9.10 $ 10.55 Commercial............. 8.26 9.85 7.89 9.69 Industrial and irrigation........... 6.18 7.64 7.23 8.49 Public authorities and other................ 6.29 6.53 5.63 8.23 Weather: Degree days: Southern Union Gas service territories.. -- 2 1,943 2,377 Missouri Gas Energy service territories.. 14 67 4,366 5,542 PG Energy service territories.......... 100 195 5,278 6,556 New England service territories.......... 25 118 4,930 6,009 Percent of 30-year measure: Southern Union Gas service territories........ 3.6% 29.9% 97.1% 118.7% Missouri Gas Energy service territories........ 21.5% 103.1% 83.9% 106.5% PG Energy service territories........ 60.6% 118.2% 84.3% 104.8% New England service territories........ 22.1% 104.4% 85.7% 104.4% Gas transported in millions of cubic feet............ 17,393 18,185 82,674 85,445 Gas transportation revenues (thousands of dollars).... $ 7,626 $ 6,888 $ 45,067 $ 44,631 The above information does not include the Company's 43% equity ownership in a natural gas distribution company serving 25,000 customers in Piedras Negras, Mexico. SIGNATURES 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 October 31, 2002 By DAVID J. KVAPIL ---------------------- -------------------------------------- David J. Kvapil Executive Vice President and Chief Financial Officer EXHIBIT INDEX Exhibit Number Description -------------- ------------------------------------------------------------- 99.a Press Release issued by Southern Union Company dated October 31, 2002 EXHIBIT 99.a 02-15 For further information: Richard N. Marshall Treasurer & Director of Investor Relations 570.829.8662 SOUTHERN UNION ANNOUNCES FIRST QUARTER RESULTS EVIDENCING CONTINUED IMPROVEMENT Conference Call & Webcast Scheduled for Today WILKES-BARRE, Pa., (October 31, 2002) - Southern Union Company ("Southern Union" or the "Company") (NYSE: SUG) today reported a first quarter net loss of $6,495,000 ($.12 per average common share -hereafter referred to as "per share"), for the three-month period ended September 30, 2002, compared with a net loss of $30,403,000 ($.55 per share) for the same period in 2001. The results for both quarters include certain significant, non-recurring gains and charges. Excluding those items (described below), the net loss for the quarter ended September 30, 2002, was $16,085,000 ($.30 per share) compared with a net loss of $19,249,000 ($.35 per share) in 2001. Due to the seasonal nature of the natural gas distribution business, Southern Union typically records a first quarter loss. The net loss for the quarter ended September 30, 2002, includes an after-tax gain of $10,920,000 ($.20 per share) on the settlement of the Company's claims against Southwest Gas Corporation ("Southwest") for fraud and breach of contract related to Southern Union's attempts to purchase Southwest. This gain was partially offset by related litigation expense totaling $1,330,000 ($.02 per share), net of tax. The net loss for the quarter ended September 30, 2001, includes an after-tax restructuring charge totaling $20,409,000 ($.37 per share), a goodwill impairment charge of $3,358,000 ($.06 per share), and after-tax litigation expense totaling $1,002,000 ($.02 per share) related to Southwest. These charges for the quarter ended September 30, 2001, were partially offset by $10,712,000 ($.19 per share) in after-tax gains generated from the settlement of interest rate swaps and a $2,903,000 ($.05 per share) after-tax gain on the sale of non-core assets. Southern Union president and chief operating officer Thomas F. Karam stated, "We are extremely pleased to be achieving our intended goals as our quarter over quarter operating results continue to show improvement. As planned, our restructuring actions a year ago continue to favorably impact our operating performance." On October 16, 2002, Southern Union announced that it had entered into a definitive agreement with ONEOK, Inc., of Tulsa, Oklahoma, to sell its Southern Union Gas Company Texas division and related assets to ONEOK for $420 million in cash. The transaction, which has been approved by the boards of directors of both companies, will close following clearance by the Federal Trade Commission under the Hart-Scott-Rodino Act and approval by certain Texas municipalities. Southern Union will host a live Webcast and conference call on Thursday, October 31, 2002 at 2 p.m. ET (1 p.m. CT) to discuss first quarter results and outlook. To participate, visit www.southernunionco.com or call 800-240-2134 approximately ten minutes prior to the start and refer to conference 504681. A replay of the call will be -MORE- available through November 7, 2002, by dialing 800-405-2236 and entering conference ID 504681#. A replay of the Webcast will also be available on Southern Union's Web site. Southern Union Company is an international energy distribution company serving approximately 1.5 million customers in Texas, Missouri, Pennsylvania, Rhode Island, Massachusetts and Mexico. For more information, visit www.southernunionco.com. This release and other Company reports and statements issued or made from time to time contain certain "forward-looking statements" concerning projected future financial performance, expected plans or future operations. Southern Union Company cautions that actual results and developments may differ materially from such projections or expectations. Investors should be aware of important factors that could cause actual results to differ materially from the forward-looking projections or expectations. These factors include, but are not limited to: weather conditions in the Company's service territories; cost of gas; regulatory and court decisions; the receipt of timely and adequate rate relief; the achievement of operating efficiencies and the purchase and implementation of new technologies for attaining such efficiencies; impact of relations with labor unions of bargaining-unit employees; the effect of any stock repurchases; and the effect of strategic initiatives (including: any recent, pending or potential acquisition or merger, recent corporate restructuring activities, any sales of non-core assets, and any related financing arrangements including refinancings and debt repurchases) on earnings and cash flow. -MORE- Following are the unaudited comparative, summarized financial results of Southern Union Company and Subsidiaries for the three- and twelve-month periods ended September 30, 2002 and 2001 (amounts in thousands except shares and per share amounts): Three months ended Twelve months ended September 30, September 30, ------------------------- ------------------------- 2002(a) 2001(b) 2002(a) 2001(c) ------------ ------------ ------------ ------------ Operating revenues....... $ 147,399 $ 173,969 $ 1,263,980 $ 1,962,314 ============ ============ ============ ============ Net operating margin (d). $ 76,084 $ 74,950 $ 480,992 $ 509,356 ============ ============ ============ ============ Net earnings (loss) available for (attributable to) common stock........... $ (6,495) $ (30,403) $ 43,532 $ 40,856 ============ ============ ============ ============ Net earnings (loss) per share (e): Basic................ $ (0.12) $ (0.55) $ 0.81 $ 0.74 ============ ============ ============ ============ Diluted.............. $ (0.12) $ (0.55) $ 0.78 $ 0.70 ============ ============ ============ =========== Weighted average shares outstanding (e): Basic................ 53,813,963 55,051,249 53,575,135 55,054,001 ============ ============ ============ ============ Diluted.............. 53,813,963 55,051,249 56,078,668 58,349,604 ============ ============ ============ ============ (a) The three- and twelve-month periods ended September 30, 2002, include an after-tax gain of $10,920,000 on the settlement of the Company's claims against Southwest Gas Corporation ("Southwest"), which was partially offset by related litigation expense of $1,330,000 and $6,006,000, respectively, net of tax. The twelve-month period ended September 30, 2002, also includes a non-cash, after-tax charge of $6,477,000 to reserve for the impairment of the cost of Southern Union's investment in a technology company. (b) The three-month period ended September 30, 2001, includes an after-tax restructuring charge of $20,409,000, a goodwill impairment charge of $3,358,000, and after-tax litigation expense of $1,002,000 related to Southwest. These charges were partially offset by after-tax gains of $10,712,000 and $2,903,000, respectively, from the settlement of interest rate swaps and the sale of non-core assets. (c) The twelve-month period ended September 30, 2001, includes after-tax gains of $46,539,000, $11,347,000, and $10,712,000, respectively, from the sale of a portion of Southern Union's investment holdings in Capstone Turbine Corporation, the sale of non-core assets, and the settlement of interest rate swaps. These gains were partially offset by an after-tax restructuring charge of $19,539,000, goodwill amortization of $14,728,000, after-tax litigation expense of $7,750,000 related to Southwest, and a goodwill impairment charge of $3,358,000. Goodwill amortization ceased on July 1, 2001, as a result of the adoption of a new accounting policy. (d) Net operating margin consists of operating revenues less gas purchase costs and revenue-related taxes. (e) All periods have been adjusted for the 5% stock dividend distributed on July 15, 2002. #####