8-K 1 form8kfy2004.txt ================================================================================ 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) February 2, 2004 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 5. OTHER EVENTS On February 2, 2004, Southern Union Company (the Company) issued a press release announcing that its subsidiary, Trunkline LNG Company, has entered into an agreement with BG LNG Services, LLC, a subsidiary of BG Group of the United Kingdom, for a Phase II modification of Trunkline LNG's Lake Charles, La., liquefied natural gas (LNG) terminal, and its subsidiary, Trunkline Gas Company, has also entered into an agreement with BG LNG Services, LLC for the construction of a 23-mile pipeline from the LNG terminal to the mainline of Trunkline Gas Company. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibit No. 99.a Press Release issued by Southern Union Company dated February 2, 2004. 99.b Press Release issued by Southern Union Company dated February 4, 2004. ITEM 9. REGULATION FD DISCLOSURE Given the nature of the Company's regulated business where capital expenditures are recovered in rates, management feels that free cash flow is an important metric of the Company's operations. The Company anticipates generating approximately $225 million of free cash flow for the fiscal year ending June 30, 2004. The Company defines "free cash flow" as the sum of: (i) earnings from continuing operations before income taxes, (ii) changes in working capital, including the difference between taxes accrued and taxes paid, and (iii) depreciation and amortization; less capital expenditures excluding LNG expansion projects. The previous statement is considered a forward-looking statement. ITEM 12. DISCLOSURE OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION On February 4, 2004, 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 six-month periods ended December 31, 2003 and 2002. The financial information released is included herein. The following information is summary in nature and should not be considered complete financial statements. 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: cost of gas; gas sales volumes; gas throughput volumes and available sources of natural gas; discounting of transportation rates due to competition; customer growth; abnormal weather conditions in the Company's service territories; impact of relations with labor unions of bargaining-unit employees; the receipt of timely and adequate rate relief and the impact of future rate cases or regulatory rulings; the outcome of pending and future litigation; the speed and degree to which competition is introduced to our gas distribution business; new legislation and government regulations and proceedings affecting or involving the Company; unanticipated environmental liabilities; the Company's ability to comply with or to challenge successfully existing or new environmental regulations; changes in business strategy and the success of new business ventures; exposure to customer concentration with a significant portion of revenues realized from a relatively small number of customers and any credit risks associated with the financial position of those customers; factors affecting operations such as maintenance or repairs, environmental incidents or gas pipeline system constraints; our or any of our subsidiaries debt securities ratings; the economic climate and growth in our industry and service territories and competitive conditions of energy markets in general; inflationary trends; changes in gas or other energy market commodity prices and interest rates; the current market conditions causing more customer contracts to be of shorter duration, which may increase revenue volatility; the possibility of war or terrorist attacks; the nature and impact of any extraordinary transactions such as any acquisition or divestiture of a business unit or any assets. SOUTHERN UNION COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------ ------------ 2003 2002 2003 2002 ---- ---- ---- ---- (THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS) Operating revenues ............................................. $ 507,113 $ 346,104 $ 738,507 $ 445,814 Cost of gas and other energy ................................... (253,880) (215,505) (311,640) (257,565) Revenue-related taxes .......................................... (13,136) (12,568) (17,461) (15,754) --------- --------- --------- --------- Operating margin .......................................... 240,097 118,031 409,406 172,495 Operating expenses: Operating, maintenance and general ........................ 100,888 42,249 201,968 83,620 Depreciation and amortization ............................. 31,697 14,067 63,031 28,451 Taxes, other than on income and revenues .................. 12,135 6,213 25,051 12,711 --------- --------- --------- --------- Total operating expenses .............................. 144,720 62,529 290,050 124,782 --------- --------- --------- --------- Net operating revenues ................................ 95,377 55,502 119,356 47,713 --------- --------- --------- --------- Other income (expenses): Interest .................................................. (32,636) (20,742) (66,600) (41,743) Dividends on preferred securities of subsidiary trust ...................................... -- (2,370) -- (4,740) Other, net ................................................ 514 (2,712) 4,321 13,726 --------- --------- --------- --------- Total other expenses, net ............................. (32,122) (25,824) (62,279) (32,757) --------- --------- --------- --------- Earnings from continuing operations before income taxes .............................................. 63,255 29,678 57,077 14,956 Federal and state income taxes ................................. 24,833 11,159 22,362 5,623 --------- --------- --------- --------- Earnings from continuing operations ............................ 38,422 18,519 34,715 9,333 --------- --------- --------- --------- Discontinued operations: Earnings from discontinued operations ..................... -- 17,468 -- 21,781 Federal and state income taxes ............................ -- 6,568 -- 8,190 --------- --------- --------- --------- Earnings from discontinued operations .......................... -- 10,900 -- 13,591 --------- --------- --------- --------- Net earnings ................................................... 38,422 29,419 34,715 22,924 Preferred stock dividends ...................................... (4,004) -- (4,004) -- --------- --------- --------- --------- Net earnings available for common shareholders .................. $ 34,418 $ 29,419 $ 30,711 $ 22,924 ========= ========= ========= ========= Net earnings from continuing operations per share: Basic ....................................... $ 0.48 $ 0.33 $ 0.43 $ 0.16 ========= ========= ======== ========= Diluted ....................................... $ 0.47 $ 0.32 $ 0.42 $ 0.16 ========= ========= ======== ========= Net earnings available for common shareholders per share: Basic ....................................... $ 0.48 $ 0.52 $ 0.43 $ 0.40 ======== ========= ======== ========= Diluted ....................................... $ 0.47 $ 0.50 $ 0.42 $ 0.39 ======== ========= ======== ========= Weighted average shares outstanding - basic .................... 71,759,349 56,919,821 71,748,220 56,713,616 ========== ========== ========== ========== Weighted average shares outstanding - diluted .................. 73,957,901 58,737,336 73,804,782 58,671,826 ========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, JUNE 30, 2003 2003 ------------- ------------ (THOUSANDS OF DOLLARS) ASSETS Property, plant and equipment: Plant ......................................... $ 3,875,330 $ 3,786,025 Less accumulated depreciation and amortization (692,131) (641,225) ----------- ----------- Net property, plant and equipment ........ 3,183,199 3,144,800 ----------- ----------- Current assets: Cash and cash equivalents ..................... 20,810 86,997 Accounts receivable, billed and unbilled, net . 308,938 192,402 Federal and state taxes receivable ............ 22,468 6,787 Inventories ................................... 230,854 173,757 Deferred gas purchase costs ................... 26,445 24,603 Gas imbalances - receivable ................... 26,974 34,911 Prepayments and other ......................... 18,121 18,971 ----------- ----------- Total current assets ..................... 654,610 538,428 ----------- ----------- Goodwill, net ...................................... 642,921 642,921 Deferred charges ................................... 187,105 188,261 Investment securities, at cost ..................... 8,038 9,641 Other .............................................. 67,310 73,674 ----------- ----------- Total assets .................................. $ 4,743,183 $ 4,597,725 =========== =========== CAPITALIZATION AND LIABILITIES Capitalization: Common stockholders' equity ..................... $ 946,502 $ 920,418 Preferred stock ................................ 230,000 -- Preferred stock of subsidiary trust, $25 par ... -- 100,000 Long-term debt and capital lease obligation ..... 2,004,408 1,611,653 ---------- ---------- Total capitalization ........................ 3,180,910 2,632,071 ---------- ---------- Current liabilities: Long-term debt due within one year .............. 260,729 734,752 Notes payable ................................... 252,000 251,500 Accounts payable ................................ 149,793 112,840 Federal, state and local taxes .................. 27,711 13,530 Gas imbalances - payable ........................ 66,049 64,519 Other ........................................... 176,107 183,652 ---------- ---------- Total current liabilities ................... 932,389 1,360,793 ---------- ---------- Deferred credits and other liabilities ............... 312,310 322,154 Accumulated deferred income taxes .................... 317,574 282,707 ---------- ---------- Total capitalization and liabilities ............ $4,743,183 $4,597,725 ========== ==========
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. Certain reclassifications have been made to prior period financial statements to conform with the current period presentation. 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. Effective June 11, 2003, the Company acquired Panhandle Energy from CMS Energy Corporation. The acquisition was accounted for using the purchase method of accounting in accordance with accounting principles generally accepted in the United States with the purchase price paid by the Company being allocated to Panhandle Energy's net assets as of the acquisition date based on preliminary estimates. The Panhandle Energy assets acquired and liabilities assumed have been recorded at their estimated fair value as of the acquisition date and are subject to further assessment and adjustment pending the results of outside appraisals. The outside appraisals are expected to be completed prior to June 30, 2004. Panhandle Energy's results of operations have been included in the Condensed Consolidated Statement of Operations since June 11, 2003. Thus, the Condensed Consolidated Statement of Operations for the periods subsequent to the acquisition is not comparable to the same periods in prior years. NOTE 2 -- OTHER INCOME (EXPENSE), NET Other income for the three-month period ended December 31, 2003 was $514,000 compared with other expense of $2,712,000 in 2002. Other income for the three-month period ended December 31, 2003 includes $743,000 of income generated from the sale and/or rental of gas-fired equipment and appliances by various operating subsidiaries. This item was partially offset by $377,000 of legal costs associated with the collection of damages from former Arizona Corporation Commissioner James Irvin related to the Company's unsuccessful acquisition of Southwest Gas Corporation (Southwest). Other expense for the three-month period ended December 31, 2002 includes $2,838,000 of legal costs associated with the Southwest litigation and $1,298,000 of selling costs related to the disposition of the Company's Texas operations. These items were partially offset by $669,000 of income generated from the sale and/or rental of gas-fired equipment and appliances. Other income for the six-month period ended December 31, 2003 was $4,321,000 compared with $13,726,000 in 2002. Other income for the six-month period ended December 31, 2003 includes a gain of $6,123,000 on the early extinguishment of debt and income of $1,527,000 generated from the sale and/or rental of gas-fired equipment and appliances. These items were partially offset by charges of $1,603,000 and $1,150,000 to reserve for the impairment of Southern Union's investments in a technology company and in an energy-related joint venture, respectively, and $655,000 of legal costs associated with the collection of damages from former Arizona Corporation Commissioner James Irvin related to the Southwest litigation. Other income for the six-month period ended December 31, 2002 includes a gain of $17,500,000 on the settlement of the Southwest litigation and income of $1,242,000 generated from the sale and/or rental of gas-fired equipment and appliances. These items were partially offset by $4,969,000 of legal costs associated with the Southwest litigation and $1,298,000 of selling costs related to the disposition of the Company's Texas operations. NOTE 3 - REPORTABLE SEGMENTS The Company's operations include two reportable segments. The Transportation and Storage segment is primarily engaged in the interstate transportation and storage of natural gas in the Midwest and Southwest, and also provides LNG terminalling and regasification services. Its operations are conducted through Panhandle Energy, which the Company acquired on June 11, 2003. The Distribution segment is primarily engaged in the local distribution of natural gas in Missouri, Pennsylvania, Rhode Island and Massachusetts. Its operations are conducted through the Company's three regulated utility divisions: Missouri Gas Energy, PG Energy and New England Gas Company. Revenue from segments in the All Other category is attributable to several operating subsidiaries of the Company: PEI Power Corporation generates and sells electricity; Fall River Gas Appliance Company, Inc. and Valley Appliance and Merchandising Company rent gas burning appliances and/or equipment and, along with PG Energy Services Inc., offer appliance service contracts; ProvEnergy Power Company LLC (ProvEnergy Power) provides outsourced energy management services and owns 50% of Capital Center Energy Company LLC, a joint venture formed between ProvEnergy and ERI Services, Inc. to provide retail power and conditioned air; and Alternate Energy Corporation provides energy consulting services. None of these segments have ever met the quantitative thresholds for determining reportable segments. The Company also has corporate operations that do not generate any revenues. The Company evaluates segment performance based on several factors, of which the primary financial measure is net operating revenues. Net Operating Revenues is defined as operating margin, less operating, maintenance and general expenses, depreciation and amortization, and taxes other than on income and revenues. The following table sets forth certain selected financial information for the Company's segments for the three- and six-month periods ended December 31, 2003 and 2002. Financial information for the Transportation and Storage segment reflects the operations of Panhandle Energy beginning on its acquisition date of June 11, 2003. There were no material intersegment revenues during the periods presented.
THREE MONTHS ENDED SIX MONTHS ENDED DECEMBER 31, DECEMBER 31, 2003 2002 2003 2002 ---- ---- ---- ---- (THOUSANDS OF DOLLARS) Revenues from external customers: Distribution .......................................... $ 375,822 $ 345,370 $ 491,851 $ 443,506 Transportation and Storage ............................ 130,344 -- 244,563 -- All Other ............................................. 947 734 2,093 2,308 --------- --------- --------- --------- Total consolidated operating revenues ...................... $ 507,113 $ 346,104 $ 738,507 $ 445,814 ========= ========= ========= ========= Operating margin: Distribution .......................................... $ 108,954 $ 117,301 $ 163,288 $ 170,572 Transportation and Storage ............................ 130,344 -- 244,563 -- All Other ............................................. 799 730 1,555 1,923 --------- --------- --------- --------- Total consolidated operating margin ........................ $ 240,097 $ 118,031 $ 409,406 $ 172,495 ========= ========= ========= ========= Net operating revenues: Distribution .......................................... $ 44,252 $ 58,699 $ 32,916 $ 52,490 Transportation and Storage ............................ 52,508 -- 90,427 -- All Other ............................................. (328) (455) (643) (304) --------- --------- --------- --------- Total segment net operating revenues ....................... 96,432 58,244 122,700 52,186 Reconciling Items: Corporate ............................................. (1,055) (2,742) (3,344) (4,473) --------- --------- --------- --------- Total consolidated net operating revenues .................. $ 95,377 $ 55,502 $ 119,356 $ 47,713 ========= ========= ========= ========= Reconciliation of net operating revenues to earnings from continuing operations before income taxes: Net operating revenues ................................ $ 95,377 $ 55,502 $ 119,356 $ 47,713 Interest .............................................. (32,636) (20,742) (66,600) (41,743) Dividends on preferred securities of subsidiary trust .................................. -- (2,370) -- (4,740) Other income (expense), net ............................ 514 (2,712) 4,321 13,726 --------- --------- --------- --------- Earnings from continuing operations before income taxes ............................................ $ 63,255 $ 29,678 $ 57,077 $ 14,956 ========= ========= ========= =========
DECEMBER 31, JUNE 30, 2003 2003 ---- ---- (THOUSANDS OF DOLLARS) Total assets: Distribution ........................ $2,403,517 $2,243,257 Transportation and Storage .......... 2,182,598 2,212,467 All Other ........................... 42,821 50,073 ---------- ---------- Total segment assets ..................... 4,628,936 4,505,797 Reconciling Items: Corporate ........................... 114,247 91,928 ---------- ---------- Total consolidated assets ................ $4,743,183 $4,597,725 ========== ========== SOUTHERN UNION COMPANY AND SUBSIDIARIES SELECTED STATISTICAL DATA The following table sets forth gas throughput and related information for the Company's Distribution segment and Transportation and Storage segment for the three- and six-month periods ended December 31, 2003 and 2002:
THREE MONTHS SIX MONTHS ENDED DECEMBER 31, ENDED DECEMBER 31, ------------------ ------------------ 2003 2002 2003 2002 ---- ---- ---- ---- DISTRIBUTION SEGMENT Average number of gas sales customers served: Residential ....................................................... 842,370 838,892 838,530 835,055 Commercial ........................................................ 101,288 99,617 100,085 97,602 Industrial and irrigation ......................................... 438 449 442 913 Public authorities and other ...................................... 386 380 387 376 -------- -------- -------- -------- Total average gas sales customers served ...................... 944,482 939,338 939,444 933,946 Average number of transportation customers served ...................... 2,578 2,435 2,570 2,499 -------- -------- -------- -------- Total average gas sales and transportation customers .......... 947,060 941,773 942,014 936,445 ======== ======== ======== ======== Gas sales in millions of cubic feet (MMcf) Residential ....................................................... 16,479 19,589 21,582 24,312 Commercial ........................................................ 6,821 7,890 9,349 10,229 Industrial and irrigation ......................................... 787 865 1,227 1,474 Public authorities and other ...................................... 92 115 111 135 -------- -------- -------- -------- Gas sales billed .............................................. 24,179 28,459 32,269 36,150 Net change in unbilled gas sales .................................. 9,661 10,090 9,059 9,889 -------- -------- -------- -------- Total gas sales ............................................... 33,840 38,549 41,328 46,039 Gas transported in MMcf ................................................ 15,888 18,236 28,858 31,498 -------- -------- -------- -------- Total gas sales and gas transported in MMcf ................... 49,728 56,785 70,186 77,537 ======== ======== ======== ======== Gas sales revenues (thousands of dollars): Residential ....................................................... $190,143 $182,019 $261,460 $244,345 Commercial ........................................................ 71,081 65,283 98,899 87,376 Industrial and irrigation ......................................... 6,187 5,787 9,957 9,934 Public authorities and other ...................................... 893 657 1,152 945 -------- -------- -------- -------- Gas revenues billed ........................................... 268,304 253,746 371,468 342,600 Net change in unbilled gas sales revenues ......................... 94,096 77,813 99,287 79,689 -------- -------- -------- -------- Total gas sales revenues ...................................... 362,400 331,559 470,755 422,289 Gas transportation revenues (thousands of dollars) ..................... 9,221 11,040 15,236 16,752 -------- -------- -------- -------- Total gas sales and gas transportation revenues ............... $371,621 $342,599 $485,991 $439,041 ======== ======== ======== ======== Gas sales revenue per thousand cubic feet billed: Residential ....................................................... $ 11.54 $ 9.29 $ 12.11 $ 10.05 Commercial ........................................................ 10.42 8.27 10.58 8.54 Industrial and irrigation ......................................... 7.86 6.69 8.11 6.74 Public authorities and other ...................................... 9.71 5.71 10.38 7.00 Weather: Degree days: Missouri Gas Energy service territories ...................... 1,740 1,995 1,827 2,009 PG Energy service territories ................................ 2,163 2,325 2,268 2,425 New England service territories .............................. 1,846 2,034 1,878 2,059 Percent of 30-year measure: Missouri Gas Energy service territories ...................... 89% 102% 90% 99% PG Energy service territories ................................ 99% 106% 96% 103% New England service territories .............................. 93% 103% 90% 99% TRANSPORTATION AND STORAGE SEGMENT Gas transported in billions of British thermal units (Bbtu) ............ 341,318 -- 666,516 -- Gas transportation revenues (thousands of dollars) ..................... $103,473 $ -- $189,851 $ --
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 February 4, 2004 By /s/ 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 February 2, 2004 99.b Press Release issued by Southern Union Company dated February 4, 2004