8-K 1 su3rdqtr8k1.txt SOUTHERN UNION 8-K THIRD QUARTER ================================================================================ 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) April 28, 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 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (c) Exhibit No. 99.a Press Release issued by Southern Union Company dated April 28, 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 in excess of $250 million of free cash flow for the fiscal year ending June 30, 2004. The Company defines "free cash flow" as the sum of: (i) net earnings available for common shareholders, (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 April 28, 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 nine-month periods ended March 31, 2004 and 2003. 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 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 NINE MONTHS ENDED MARCH 31, MARCH 31, ---------------------- --------------------- 2004 2003 2004 2003 ---- ---- ---- ---- (THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS) Operating revenues ..................................... $ 774,579 $ 535,663 $ 1,513,086 $ 981,477 Cost of gas and other energy ........................... (454,736) (356,393) (766,376) (613,958) Revenue-related taxes .................................. (21,951) (17,870) (39,412) (33,624) ----------- ----------- ----------- ----------- Operating margin .................................. 297,892 161,400 707,298 333,895 Operating expenses: Operating, maintenance and general ................ 106,809 48,203 308,777 131,823 Depreciation and amortization ..................... 26,419 14,621 89,450 43,072 Taxes, other than on income and revenues .......... 14,299 6,434 39,350 19,145 ----------- ----------- ----------- ----------- Total operating expenses ...................... 147,527 69,258 437,577 194,040 ----------- ----------- ----------- ----------- Net operating revenues ........................ 150,365 92,142 269,721 139,855 ----------- ----------- ----------- ----------- Other income (expense): Interest .......................................... (31,055) (19,840) (97,655) (61,583) Dividends on preferred securities of subsidiary trust .............................. -- (2,370) -- (7,110) Other, net ........................................ 1,451 5,223 5,772 18,949 ----------- ----------- ----------- ----------- Total other expenses, net ..................... (29,604) (16,987) (91,883) (49,744) ----------- ----------- ----------- ----------- Earnings from continuing operations before income taxes ...................................... 120,761 75,155 177,838 90,111 Federal and state income taxes ......................... 45,394 28,921 67,756 34,544 ----------- ----------- ----------- ----------- Net earnings from continuing operations ................ 75,367 46,234 110,082 55,567 ----------- ----------- ----------- ----------- Discontinued operations: Earnings from discontinued operations before income taxes ........................... -- 62,992 -- 84,773 Federal and state income taxes .................... -- 45,327 -- 53,517 ----------- ----------- ----------- ----------- Net earnings from discontinued operations .............. -- 17,665 -- 31,256 ----------- ----------- ----------- ----------- Net earnings ........................................... 75,367 63,899 110,082 86,823 Preferred stock dividends .............................. (4,341) -- (8,345) -- ----------- ----------- ----------- ----------- Net earnings available for common shareholders ......... $ 71,026 $ 63,899 $ 101,737 $ 86,823 =========== =========== =========== =========== Netearnings available for common shareholders from continuing operations per share: Basic ........................................... $ 0.99 $ 0.81 $ 1.42 $ 0.98 =========== =========== =========== =========== Diluted ........................................... $ 0.96 $ 0.79 $ 1.38 $ 0.95 =========== =========== =========== =========== Net earnings available for common shareholders per share: Basic ........................................... $ 0.99 $ 1.12 $ 1.42 $ 1.53 =========== =========== =========== =========== Diluted ........................................... $ 0.96 $ 1.09 $ 1.38 $ 1.48 =========== =========== =========== =========== Weighted average shares outstanding - basic.......... 71,900,914 57,042,570 71,798,748 56,821,666 ============= ============= ============= ============= Weighted average shares outstanding - diluted........ 74,124,531 58,849,853 73,904,350 58,730,594 ============= ============= ============= =============
See Notes to Condensed Consolidated Financial Statements. SOUTHERN UNION COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
MARCH 31, JUNE 30, 2004 2003 ---- ---- (THOUSANDS OF DOLLARS) ASSETS Property, plant and equipment: Plant in service ............................................................ $ 3,913,865 $ 3,786,025 Less accumulated depreciation and amortization .............................. (722,019) (641,225) ----------- ----------- Net property, plant and equipment ...................................... 3,191,846 3,144,800 ----------- ----------- Current assets: Cash and cash equivalents ................................................... 71,584 86,997 Accounts receivable, billed and unbilled, net ............................... 335,299 192,402 Federal and state taxes receivable .......................................... 25,382 6,787 Inventories ................................................................. 96,979 173,757 Deferred gas purchase costs ................................................. 10,447 24,603 Gas imbalances - receivable ................................................. 17,175 34,911 Prepayments and other ....................................................... 27,593 18,971 ----------- ----------- Total current assets ................................................... 584,459 538,428 ----------- ----------- Goodwill, net .................................................................... 642,921 642,921 Deferred charges ................................................................. 185,910 188,261 Investment securities, at cost ................................................... 8,038 9,641 Other ............................................................................ 65,012 73,674 ----------- ----------- Total assets ................................................................ $ 4,678,186 $ 4,597,725 =========== =========== CAPITALIZATION AND LIABILITIES Capitalization: Stockholders' equity ........................................................ $ 1,245,933 $ 920,418 Preferred stock of subsidiary trust, $25 par ................................ -- 100,000 Long-term debt and capital lease obligation ................................. 2,188,820 1,611,653 ----------- ----------- Total capitalization .................................................... 3,434,753 2,632,071 ----------- ----------- Current liabilities: Long-term debt due within one year .......................................... 99,501 734,752 Notes payable ............................................................... 75,500 251,500 Accounts payable ............................................................ 138,956 112,840 Federal, state and local taxes .............................................. 36,845 13,530 Gas imbalances - payable .................................................... 40,870 64,519 Other ....................................................................... 199,275 183,652 ----------- ----------- Total current liabilities ............................................... 590,947 1,360,793 ----------- ----------- Deferred credits and other liabilities ........................................... 278,793 322,154 Accumulated deferred income taxes ................................................ 373,693 282,707 ----------- ----------- Total capitalization and liabilities ........................................ $ 4,678,186 $ 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 based on their estimated fair value as of the acquisition date based on the results of outside appraisals. 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 March 31, 2004 was $1,451,000 compared with $5,223,000 for the same period in 2003. Other income for the three-month period ended March 31, 2004 includes several items, none of which are individually significant. Other income for the three-month period ended March 31, 2003 includes a gain of $5,000,000 on the settlement of the Company's claims against ONEOK related to its blocked acquisition of Southwest Gas Corporation (Southwest), which was partially offset by $504,000 of related legal costs. Other income for the nine-month period ended March 31, 2004 was $5,772,000 compared with $18,949,000 for the same period in 2003. Other income for the nine-month period ended March 31, 2004 includes a gain of $6,354,000 on the early extinguishment of debt and income of $1,748,000 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. Other income for the nine-month period ended March 31, 2003 includes a gain of $22,500,000 on the settlement of the Company's claims against ONEOK and Southwest Gas Corporation related to the Southwest litigation, and income of $1,718,000 generated from the sale and/or rental of gas-fired equipment and appliances by various operating subsidiaries. These items were partially offset by $5,473,000 of legal costs related to the Southwest litigation and $1,298,000 of selling costs related to the Texas Operations' disposition. 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; PG Energy Services Inc., offers appliance service contracts; ProvEnergy Power Company LLC (ProvEnergy Power), which was sold effective October 31, 2003, provided outsourced energy management services and owned 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 nine-month periods ended March 31, 2004 and 2003. 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 NINE MONTHS ENDED MARCH 31, MARCH 31, 2004 2003 2004 2003 ---- ---- ---- ---- (THOUSANDS OF DOLLARS) Revenues from external customers: Distribution .................................................. $ 635,384 $ 534,573 $ 1,127,235 $ 978,078 Transportation and Storage .................................... 138,179 -- 382,742 -- All Other ..................................................... 1,016 1,090 3,109 3,399 ----------- ----------- ----------- ----------- Total consolidated operating revenues .............................. $ 774,579 $ 535,663 $ 1,513,086 $ 981,477 =========== =========== =========== =========== Operating margin: Distribution .................................................. $ 158,846 $ 160,506 $ 322,134 $ 331,078 Transportation and Storage .................................... 138,179 -- 382,742 -- All Other ..................................................... 867 894 2,422 2,817 ----------- ----------- ----------- ----------- Total consolidated operating margin ................................ $ 297,892 $ 161,400 $ 707,298 $ 333,895 =========== =========== =========== =========== Net operating revenues: Distribution .................................................. $ 83,620 $ 95,578 $ 116,536 $ 148,069 Transportation and Storage .................................... 68,974 -- 159,495 -- All Other ..................................................... (2,716) (30) (3,453) (335) ----------- ----------- ----------- ----------- Total segment net operating revenues ............................... 149,878 95,548 272,578 147,734 Reconciling item-Corporate ........................................ 487 (3,406) (2,857) (7,879) ----------- ----------- ----------- ----------- Total consolidated net operating revenues .......................... $ 150,365 $ 92,142 $ 269,721 $ 139,855 =========== =========== =========== =========== Reconciliation of net operating revenues to earnings from continuing operations before income taxes: Net operating revenues ........................................ $ 150,365 $ 92,142 $ 269,721 $ 139,855 Interest ...................................................... (31,055) (19,840) (97,655) (61,583) Dividends on preferred securities of subsidiary trust .......................................... -- (2,370) -- (7,110) Other income, net ............................................. 1,451 5,223 5,772 18,949 ----------- ----------- ----------- ----------- Earnings from continuing operations before income taxes .................................................... $ 120,761 $ 75,155 $ 177,838 $ 90,111 =========== =========== =========== ===========
MARCH 31, JUNE 30, 2004 2003 ---- ---- (THOUSANDS OF DOLLARS) Total assets: Distribution ............................ $2,301,247 $2,243,257 Transportation and Storage .............. 2,220,022 2,212,467 All Other ............................... 42,427 50,073 ---------- ---------- Total segment assets ......................... 4,563,696 4,505,797 Reconciling item-Corporate .................. 114,490 91,928 ---------- ---------- Total consolidated assets .................... $4,678,186 $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 nine-month periods ended March 31, 2004 and 2003:
THREE MONTHS NINE MONTHS ENDED MARCH 31, ENDED MARCH 31, --------------- --------------- 2004 2003 2004 2003 ---- ---- ---- ---- DISTRIBUTION SEGMENT Average number of customers served: Residential ..................................................... 853,825 849,011 843,462 839,761 Commercial ...................................................... 105,455 103,888 101,874 100,019 Industrial and irrigation ....................................... 437 446 440 447 Public authorities and other .................................... 385 379 386 377 ---------- ---------- ---------- ---------- Total average gas sales customers ........................... 960,102 953,724 946,162 940,604 Transportation customers ........................................ 2,694 2,511 2,611 2,493 ---------- ---------- ---------- ---------- Total average gas sales and transportation customers ........ 962,796 956,235 948,773 943,097 ========== ========== ========== ========== Gas sales in millions of cubic feet (MMcf): Residential ..................................................... 42,239 43,696 63,588 68,006 Commercial ...................................................... 17,238 17,521 26,503 27,751 Industrial and irrigation ....................................... 748 778 1,974 1,334 Public authorities and other .................................... 162 172 273 308 ---------- ---------- ---------- ---------- Gas sales billed ............................................ 60,387 62,167 92,338 97,399 Net change in unbilled gas sales ................................ (3,665) (3,072) 6,688 7,220 ---------- ---------- ---------- ---------- Total gas sales ............................................. 56,722 59,095 99,026 104,619 Gas transported ................................................. 19,790 20,855 47,897 52,363 ---------- ---------- ---------- ---------- Total gas sales and gas transported ......................... 76,512 79,950 146,923 156,982 ========== ========== ========== ========== Gas sales revenues (thousands of dollars): Residential ..................................................... $ 449,506 $ 384,227 $ 710,965 $ 629,791 Commercial ...................................................... 175,513 145,174 274,413 232,549 Industrial and irrigation ....................................... 7,510 8,029 17,467 17,344 Public authorities and other .................................... 1,509 1,703 2,661 2,625 ---------- ---------- ---------- ---------- Gas revenues billed ......................................... 634,038 539,133 1,005,506 882,309 Net change in unbilled gas sales revenues ....................... (17,401) (20,163) 86,222 59,525 ---------- ---------- ---------- ---------- Total gas sales revenues .................................... 616,637 518,970 1,091,728 941,834 Gas transportation revenues ..................................... 12,111 13,690 27,346 31,270 ---------- ---------- ---------- ---------- Total gas sales and gas transportation revenues ............. $ 628,748 $ 532,660 $1,119,074 $ 973,104 ========== ========== ========== ========== Gas sales revenue per thousand cubic feet billed: Residential ............................................ $ 10.64 $ 8.79 $ 11.18 $ 9.26 Commercial ............................................. 10.18 8.29 10.35 8.38 Industrial and irrigation .............................. 10.04 10.32 8.85 13.00 Public authorities and other ........................... 9.31 9.90 9.75 8.52 Weather: Degree days: Missouri Gas Energy service territories................ 2,595 2,723 4,422 4,732 PG Energy service territories.......................... 3,293 3,360 5,561 5,785 New England Gas Company service territories............ 3,062 3,131 4,939 5,193 Percent of 30-year measure: Missouri Gas Energy service territories................ 96% 100% 93% 100% PG Energy service territories.......................... 106% 108% 102% 106% New England Gas Company service territories............ 105% 108% 99% 104% TRANSPORTATION AND STORAGE SEGMENT Gas transported in billions of British thermal units (Bbtu)...... 351,791 -- 1,018,307 -- Gas transportation revenues (thousands of dollars)............... $ 111,106 $ -- $ 300,957 $ --
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 April 28, 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 April 28, 2004