EX-99.5 7 proformafinancials.htm PRO FORMA FINANCIALS Pro Forma Financials
Exhibit 99.5
 

SOUTHERN UNION COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS

The following unaudited pro forma combined condensed statements of operations present the combined financial data of Southern Union Company and subsidiaries (“Southern Union” or the “Company”), Sid Richardson Energy Services, Ltd. and subsidiaries (“SRES”) and Richardson Energy Marketing, Ltd. (“REM”) after giving effect to Southern Union’s acquisition of SRES and REM for $1,600,000,000 in cash (the “Acquisition”). The Company completed the Acquisition on March 1, 2006.

The unaudited pro forma combined condensed statements of operations for the twelve months ended December 31, 2005 and the three months ended March 31, 2006 give effect to the Acquisition as if it had occurred on January 1, 2005. Because the unaudited consolidated condensed balance sheet as of March 31, 2006 presented in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006 includes the effect of the Acquisition and related assets and liabilities acquired, no pro forma consolidated condensed balance sheet has been presented in this Current Report on Form 8-K/A.

The Acquisition was funded under a bridge loan facility in the amount of $1.6 billion (“Bridge Loan”) that was entered into on March 1, 2006 between the Company and its wholly-owned subsidiary, Enhanced Service Systems, Inc., as borrowers, and a group of banks and lenders. The Bridge Loan is available for a maximum period of 364 days at interest rates tied to either LIBOR or the prime rate plus a spread based upon the credit ratings of the Company’s senior unsecured debt. Under the terms of the Bridge Loan, the Company is required to apply 100% of the net cash proceeds from asset dispositions and from the issuance of equity and/or debt, other than from the refinancing of debt, to repayment of the Bridge Loan. Accordingly, the Company expects to retire the Bridge Loan with the net proceeds from: (i) the sales of its PG Energy operating division and the Rhode Island operations of its New England Gas Company operating division with estimated proceeds of $1.1 billion (the “LDC Sales”); and (ii) as appropriate, permanent debt and/or equity financing. The unaudited pro forma combined condensed statements of operations give effect to Southern Union's funding of the acquisition through the Bridge Loan. Due to the uncertainty as to the timing of the completion of the LDC Sales and the ultimate amount of permanent debt and/or equity financing, the unaudited pro forma combined condensed statements of operations give effect to the Bridge Loan as if it were outstanding for all periods presented. To the extent the Company is successful at closing the LDC Sales and issuing permanent equity financing, ongoing interest expense associated with the Acquisition financing will be significantly less than the amounts estimated in the following unaudited pro forma combined condensed statements of operations.
 
The excess of the Acquisition’s purchase price over the book value of the net assets acquired is primarily attributable to property, plant and equipment, including certain amortizable intangibles, based on the estimated fair values of the assets acquired. The estimates of the fair values of the assets are preliminary and will be revised to reflect the results of independent appraisals, which have not been completed. The unaudited pro forma combined condensed statements of operations give effect to the Company’s preliminary estimate of the step-up in basis of the acquired assets and liabilities.

The unaudited pro forma combined condensed statements of operations are based upon currently available information and certain assumptions that the Company believes are reasonable under the circumstances. Assumptions underlying the pro forma adjustments are described in the accompanying notes and should be read in conjunction with the unaudited pro forma combined condensed statements of operations. The unaudited pro forma combined condensed statements of operations are furnished for informational purposes only and do not purport to represent the Company’s results of operations had the Acquisition actually occurred on the date indicated or for any future period.

The unaudited pro forma combined condensed statements of operations do not contain any adjustments to reflect cost savings or other synergies anticipated as a result of the Acquisition.



Southern Union Company  
  
Unaudited Pro Forma Combined Condensed Statement of Operations  
  
For the Twelve Months Ended December 31, 2005  
  
(In thousands of dollars, except shares and per share amounts)  
 
           
Southern
                       
           
Union
 
Sid
                  
           
Historical
 
Richardson
  
Richardson
              
   
Southern
  
(H)
  
Recast for
 
Energy
 
Energy
              
   
Union
 
Discontinued
 
Discontinued
 
Services
 
Marketing
 
Pro Forma  
  
Operating revenues:
  
Historical
 
Operations
 
Operations
 
Historical
 
Historical
 
Adjustments
 
 Combined
 
Gas distribution
  
$
1,503,272
  
$
(750,573
)
$
752,699
  
$
-
  
$
-
  
$
-
        
$
752,699
 
Gathering and processing
    
-
   
-
   
-
   
1,001,061
   
1,450,193
   
(1,082,080
)
  
(A
)
  
1,369,174
 
Gas transportation and storage
    
505,233
   
-
   
505,233
   
-
   
-
   
-
         
505,233
 
Other
    
10,925
   
(1,975
)
  
8,950
   
-
   
-
   
-
         
8,950
 
Total operating revenues
    
2,019,430
   
(752,548
)
  
1,266,882
   
1,001,061
   
1,450,193
   
(1,082,080
)
        
2,636,056
 
                                                   
Operating expenses:
                                                  
Cost of gas and other energy
    
1,040,956
   
(511,506
)
  
529,450
   
833,017
   
1,443,136
   
(1,082,080
)
  
(A
)
  
1,721,020
 
                                   
(2,503
)
  
(B
)
      
Revenue—related taxes
    
51,857
   
(11,777
)
  
40,080
   
-
   
-
   
-
         
40,080
 
Operating, maintenance and general
    
417,663
   
(115,638
)
  
302,025
   
69,489
   
3,660
   
-
         
375,174
 
Depreciation and amortization
    
126,393
   
(33,831
)
  
92,562
   
18,843
   
-
   
66,905
   
(C
)
  
159,467
 
                                   
(18,843
)
  
(C
)
      
Goodwill impairment
    
175,000
   
(175,000
)
  
-
   
-
   
-
   
-
         
-
 
Taxes, other than on income and revenues
    
44,517
   
(10,869
)
  
33,648
   
-
   
-
   
2,503
   
(B
)
  
36,151
 
Total operating expenses
    
1,856,386
   
(858,621
)
  
997,765
   
921,349
   
1,446,796
   
(1,034,018
)
        
2,331,892
 
Operating income
    
163,044
   
106,073
   
269,117
   
79,712
   
3,397
   
(48,062
)
        
304,164
 
                                                   
Other income (expenses):
                                                  
Interest
    
(135,157
)
  
6,688
   
(128,469
)
  
(5,061
)
  
688
   
(92,760
)
  
(D
)
  
(218,988
)
                                   
531
   
(E
)
      
                                   
6,083
   
(F
)
      
Earnings from unconsolidated investments
    
70,742
   
-
   
70,742
   
-
   
-
   
-
         
70,742
 
Other, net
    
(7,069
)
  
(1,172
)
  
(8,241
)
  
(6,078
)
  
(31
)
  
-
         
(14,350
)
Total other income (expenses), net
    
(71,484
)
  
5,516
   
(65,968
)
  
(11,139
)
  
657
   
(86,146
)
        
(162,596
)
                                                   
Earnings from continuing operations
                                                  
before income taxes
    
91,560
   
111,589
   
203,149
   
68,573
   
4,054
   
(134,208
)
        
141,568
 
                                                   
Federal and state income taxes
    
70,877
   
(28,326
)
  
42,551
   
307
   
-
   
(46,973
)
  
(G
)
  
(4,115
)
Net earnings from continuing operations
   
20,683
   
139,915
   
160,598
   
68,266
   
4,054
   
(87,235
)
        
145,683
 
Preferred stock dividends
    
(17,365
)
  
-
   
(17,365
)
  
-
   
-
   
-
         
(17,365
)
Net earnings available for common stockholders
                                                  
from continuing operations
  
$
3,318
  
$
139,915
  
$
143,233
  
$
68,266
  
$
4,054
  
$
(87,235
)
      
$
128,318
 
                                                   
Net earnings available for common stockholders
                                                  
from continuing operations per share:
                                                  
Basic
              
$
1.31
                          
$
1.17
  
Diluted
              
$
1.27
                          
$
1.14
  
Weighted average shares outstanding:
                                                  
Basic
                
109,395,418
                            
109,395,418
  
Diluted
                
112,794,210
                            
112,794,210
  
                                                   
                                                   
                                                   

 
 

Southern Union Company
                       
Unaudited Pro Forma Combined Condensed Statement of Operations
                       
For the Three Months Ended March 31, 2006
                       
(In thousands of dollars, except shares and per share amounts)
      
 
               
                       
       
SRES and REM
             
       
Unaudited
              
   
Southern
 
January 1, 2006
              
   
Union
 
to
              
   
Company
 
February 28, 2006
  
Pro Forma  
  
Operating revenues:
  
Historical
 
Historical
 
Adjustments
 
 Combined
 
Gas distribution 
  
$
298,229
  
$
-
  
$
-
        
$
298,229
 
Gathering and processing 
    
103,231
   
230,549
   
-
         
333,780
 
Gas transportation and storage 
    
144,643
   
-
   
-
         
144,643
 
Other 
    
1,063
   
-
   
-
         
1,063
 
 Total operating revenues
    
547,166
   
230,549
   
-
         
777,715
 
                                 
Operating expenses:
                                
Cost of gas and other energy 
    
306,602
   
220,674
   
(476
)
  
(B
)
  
526,800
 
Revenue—related taxes 
    
16,217
   
-
   
-
         
16,217
 
Operating, maintenance and general 
    
78,777
   
5,340
   
-
         
84,117
 
Depreciation and amortization 
    
30,865
   
3,127
   
16,726
   
(C
)
  
50,718
 
                 
(8,702
)
  
(C
)
  
(8,702
)
Taxes, other than on income and revenues 
    
11,858
   
-
   
476
   
(B
)
  
12,334
 
 Total operating expenses
    
444,319
   
229,141
   
8,024
         
681,484
 
 Operating income
    
102,847
   
1,408
   
(8,024
)
        
96,231
 
                                 
Other income (expenses):
                                
Interest 
    
(42,221
)
  
(356
)
  
(22,875
)
  
(D
)
  
(56,144
)
                 
8,500
   
(D
)
      
                 
133
   
(E
)
      
                 
675
   
(F
)
      
Earnings from unconsolidated investments 
    
11,566
   
-
   
-
         
11,566
 
Other, net 
    
37,093
   
109
   
-
         
37,202
 
 Total other income (expenses), net
    
6,438
   
(247
)
  
(13,567
)
        
(7,376
)
                                 
Earnings from continuing operations before income taxes
    
109,285
   
1,161
   
(21,591
)
        
88,855
 
                                 
Federal and state income taxes
    
35,867
   
(148
)
  
(7,557
)
  
(G
)
  
28,162
 
Net earnings from continuing operations
    
73,418
   
1,309
   
(14,034
)
        
60,693
 
Preferred stock dividends
    
(4,341
)
  
-
   
-
         
(4,341
)
Net earnings available for common stockholders
                                
from continuing operations 
  
$
69,077
  
$
1,309
  
$
(14,034
)
      
$
56,352
 
                                 
Net earnings available for common stockholders
                                
from continuing operations per share: 
                                
 Basic
  
$
0.62
                    
$
0.50
 
 Diluted
  
$
0.60
                    
$
0.49
 
Weighted average shares outstanding:
                                
 Basic
    
111,668,336
                      
111,668,336
  
 Diluted
    
114,673,501
                      
114,673,501
  
                                 
 

 

 SOUTHERN UNION COMPANY AND SUBSIDIARIES
NOTES TO THE UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS


Adjustments to the Unaudited Pro Forma Combined Condensed Statements of Operations:
 
(A)
Reflects the elimination of historical affiliate sales and cost of sales transactions between SRES and REM.
 
(B) Reflects the reclassification of historical amounts relating to SRES and REM taxes, other than on income and revenues, to conform to Southern
  Union's presentation.
   
(C)  
 Reflects the elimination of historical depreciation and amortization expense and the adjustment for depreciation and amortization expense related to
  the stepped-up basis of Property, Plant and Equipment (“PP&E”) and definite-lived intangibles (“Intangibles”) of $1.572 billion. The estimate of the fair value of the assets acquired is preliminary and will be revised to reflect the results of independent appraisals, which have not been completed.

   
12 Months
  
3 Months
  
   
Ended
  
Ended
  
   
December 31, 2005
  
March 31, 2006
  
Estimated new book value of PP&E and Intangibles
  
$
1,572,274,000
  
$
1,572,274,000
  
Estimated average future useful life (in years)
    
23.5
   
23.5
 
Estimated annual depreciation and amortization expense
    
66,905,277
   
66,905,277
 
Adjust to quarterly expense (3 months/12 months)
    
-
   
25.00
%
Estimated pro forma depreciation and amortization expense
  
$
66,905,277
  
$
16,726,319
  
               
Eliminate historical depreciation expense
  
$
18,843,000
  
$
8,702,000
  
               
 
 
(D)   Reflects interest expense related to Southern Union's Bridge Loan of $1.6 billion. The interest rate used in the following calculation is 5.31%, based
  on a spread of 57.5 basis points over the one-month USD LIBOR quote in accordance with the Bridge Loan agreement, as of March 31, 2006. Additionally, in connection with this borrowing, Southern Union incurred approximately $7.8 million of direct costs. These issuance costs were capitalized and are amortized as an adjustment to interest expense for pro forma purposes over the term of the Bridge Loan which is 364 days. For every 1/8 percent change in the interest rate assumed for the Bridge Loan, interest expense for the twelve months ended December 31, 2005 and the three months ended March 31, 2006 would change by approximately $2,000,000 and $500,000, respectively.

   
12 Months
  
3 Months
  
   
Ended
  
Ended
  
   
December 31, 2005
  
March 31, 2006
  
Principal
  
$
1,600,000,000
  
$
1,600,000,000
  
Estimated interest rate
    
5.31
%
  
5.31
%
Estimated annual interest expense on Bridge Loan
    
84,960,000
   
84,960,000
 
Annual amortization of Bridge Loan issuance costs
    
7,800,000
   
7,800,000
 
Estimated annual Bridge Loan expense
    
92,760,000
   
92,760,000
 
Adjust to quarterly rate (90 days/365 days)
    
-
   
24.66
%
Estimated pro forma Bridge Loan expense
  
$
92,760,000
  
$
22,874,616
  
               
Eliminate historical (March 2006) Bridge Loan expense
        
$
8,500,000
  
               

 
 
(E) 
 Reflects the reduction in interest expense associated with the repayment of amounts outstanding on the Southern Union credit facilities from the
  estimated $10 million working capital purchase price adjustment calculated at the close of the Acquisition and reflected in the adjusted purchase price. The interest expense adjustment is calculated using the credit facility rate of 5.31% as of March 31, 2006.
   
(F) 
 Reflects the elimination of historical interest expense associated with SRES borrowings that were not assumed by Southern Union in the
  Acquisition.
   
(G)  Reflects the income tax consequences of the pro forma adjustments at Southern Union’s statutory federal tax rate of 35%.
   
(H) Reflects the elimination of Southern Union’s historical operations related to the LDC Sales. The Company began classifying these operations as
  discontinued operations in its consolidated statement of operations for the quarter ended March 31, 2006.