-----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, CCpmqpqvdaqlYe7YtqhCd14wyz3VlSkhVmDcu9dSiYrz7AZSenN1Ais0FZ5bU4sz hDtzD/5WLBemJnezKcREcQ== 0000203248-99-000027.txt : 19991122 0000203248-99-000027.hdr.sgml : 19991122 ACCESSION NUMBER: 0000203248-99-000027 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19991118 ITEM INFORMATION: FILED AS OF DATE: 19991118 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: 0630 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-06407 FILM NUMBER: 99760672 BUSINESS ADDRESS: STREET 1: 504 LAVACA ST 8TH FL CITY: AUSTIN STATE: TX ZIP: 78701 BUSINESS PHONE: 5124775852 8-K 1 ================================================================= 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) November 4, 1999 SOUTHERN UNION COMPANY (Exact name of registrant as specified in its charter) Delaware 1-6407 75-0571592 (State or other jurisdiction (Commission) (I.R.S. Employer of incorporation or File Number) Identification organization) 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 ================================================================= ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS Southern Union Company ("Southern Union") completed the merger of Pennsylvania Enterprises, Inc. (PEI) on November 4, 1999, pursu- ant to the terms of the Agreement of Merger (the "Merger Agree- ment"), dated as of June 7, 1999, by and between Southern Union and PEI. The Merger Agreement is included as an exhibit to this Current Report on Form 8-K and incorporated herein by reference. Southern Union paid approximately $32 million in cash and issued approximately 17 million shares of its common stock as considera- tion for shares of PEI common stock, determined pursuant to the terms of the Merger Agreement. The cash consideration issued was funded by a $300 million senior note offering completed by Southern Union on November 3, 1999. Pennsylvania Enterprises, Inc. was a multifaceted energy company with natural gas distribution being its primary business in northeastern and central Pennsylvania. The Pennsylvania distri- bution properties will operate as a division of Southern Union. In addition, subsidiaries also market electricity and provide utility construction services. The company will continue to operate in these fields. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Businesses Acquired. (1) The following audited financial statements and related documents for PEI are incorporated herein by reference from PEI's Form 10-K (File No. 0-7812) for the year ended December 31, 1998: Report of independent accountants, PricewaterhouseCoopers LLP; Report of independent public accountants, Arthur Andersen LLP; Consolidated statements of income for the years ended December 31, 1998, 1997 and 1996; Consolidated balance sheets at December 31, 1998 and 1997; Consolidated statements of cash flows for the years ended December 31, 1998, 1997 and 1996; Consolidated statements of capitalization at December 31, 1998 and 1997; Consolidated statements of common shareholders' investment for the years ended December 31, 1998, 1997 and 1996; and Notes to consolidated financial statements. (2) The following unaudited interim financial statements are incorporated herein by reference from PEI's Form 10-Q (File No. 0-7812) for the quarter ended June 30, 1999: Consolidated statements of income for the three and six months ended June 30, 1999 and 1998; Consolidated balance sheets as of June 30, 1999 and December 31, 1998; Consolidated statements of cash flows for the six months ended June 30, 1999 and 1998; and Notes to consolidated financial statements. (b) Pro Forma Financial Information. The following Unaudited Pro Forma Combined Condensed Financial Statements present the combined financial data of Southern Union and Pennsylvania Enterprises, Inc. (PEI), including their respective subsidiaries, after giving effect to the merger, pursuant to which Southern Union assumed certain indebtedness of PEI and its sub- sidiaries, including $45 million of mortgage bonds, and the issuance of $300 million of senior notes. It was assumed that the merger and the issuance of senior notes had been effective for the periods indicated and that the purchase method of accounting was utilized. The pro forma adjustments reflect an estimated additional purchase cost assigned to utility plant based on the historical cost of the regulated assets and liabilities of PEI and an esti- mate of the fair value of the non-regulated assets and liabilities of PEI, plus estimated acquisition costs. The estimate of the fair value of the non-regulated assets is preliminary and may be revised after the completion of independent appraisals, which have not been performed. The unaudited pro forma combined condensed financial information presented below is based on the assumption that upon completion of the merger each PEI stockholder will receive, in exchange for each share of PEI common stock he or she owns, a combination of Southern Union common stock and cash worth in the aggregate $35. The historical financial information of PEI includes certain reclassifications to conform to Southern Union's presenta- tion. These reclassifications have no impact on net income or total stockholders' equity. The fiscal years of Southern Union and PEI end on June 30 and December 31, respectively, and accordingly, the Unaudited Pro Forma Combined Condensed Financial State- ments have been prepared using the financial statements of Southern Union combined with the comparable financial statement periods of PEI derived from its historical financial statements. The Unaudited Pro Forma Combined Condensed Balance Sheet as of September 30, 1999 is presented as if the merger had occurred on that date and using the Southern Union and PEI balance sheets at September 30, 1999. The Unaudited Pro Forma Combined Condensed Statements of Operations for the twelve months ended June 30, 1999, and the three-month period ended September 30, 1999, assumes that the merger and the issuance of senior notes occurred at the beginning of the earliest period presented and includes the comparable twelve months ended June 30, 1999, and the three-month period ended September 30, 1999, for PEI. The following Unaudited Pro Forma Combined Condensed Financial Statements have been prepared from, and should be read in conjunction with, the historical financial statements and related notes thereto of Southern Union and PEI. The following Unaudited Pro Forma Combined Condensed Financial Statements are presented for purposes of illustration only in accordance with the assumptions set forth below and are not necessarily indicative of the financial position or operating results that would have occurred if the merger and the issuance of senior notes had been consummated on the dates as of which, or at the beginning of the period for which, the merger is being given effect nor is it necessarily indicative of the future operating results or financial position of the combined enterprise. The Unaudited Pro Forma Combined Condensed Financial Statements do not contain any adjustments to reflect cost savings or other synergies that may result from the merger. UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET SEPTEMBER 30, 1999 Historical -------------------- Pennsyl- vania Southern Enter- Union prises, Pro Forma ------------------------ Company Inc. Adjustments Combined ---------- -------- ----------- ---------- (thousands of dollars) Property, plant and equipment... $1,130,034 $389,666 $ -- $1,519,700 Less accumulated depreciation and amortiza- tion............ (376,440) (102,467) -- (478,907) ---------- -------- --------- ---------- 753,594 287,199 -- 1,040,793 Additional pur- chase cost assigned to utility plant, net............. 133,275 -- 259,453 (A) 392,728 ---------- -------- --------- ---------- Net property, plant and equipment..... 886,869 287,199 259,453 1,433,521 Current assets... 84,672 60,183 29,924 (B) 174,779 Deferred charges. 97,425 40,638 1,000 (C) 142,033 2,970 (D) Investment securities...... 13,413 -- -- 13,413 Real estate and other........... 15,251 32,936 -- 48,187 ---------- -------- --------- ---------- Total.......... $1,097,630 $420,956 $ 293,347 $1,811,933 ========== ======== ========= ========== Common stock- holders' equity.......... $ 294,723 $137,832 $(137,832)(E) $ 642,587 347,864 (F) Company-obligated mandatorily redeemable pre- ferred securi- ties of sub- sidiary trust... 100,000 -- -- 100,000 Long-term debt and capital lease obliga- tion............ 390,413 95,000 (50,000)(G) 735,413 300,000 (B) ---------- -------- --------- ---------- Total capitali- zation........ 785,136 232,832 460,032 1,478,000 Current liabili- ties............ 164,848 109,666 (77,597)(G) 107,829 (4,985)(H) (84,103)(I) Deferred credits and other....... 79,023 15,106 -- 94,129 Accumulated de- ferred income taxes........... 68,623 63,352 -- 131,975 Commitments and contingencies... ---------- -------- --------- ---------- Total.......... $1,097,630 $420,956 $ 293,347 $1,811,933 ========== ======== ========= ========== See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS For The Twelve Months Ended June 30, 1999 Historical -------------------- Pennsyl- vania Southern Enter- Union prises, Pro Forma ------------------------ Company Inc. Adjustments Combined ---------- -------- ------------ ---------- (thousands of dollars, except shares and per share amounts) Operating revenues........ $ 605,231 $233,605 $ -- $ 838,836 Cost of gas and other energy.... 342,301 145,319 -- 487,620 ---------- -------- ---------- --------- Operating margin........ 262,930 88,286 -- 351,216 ---------- -------- ---------- --------- Operating expenses: Operating, maintenance and general... 109,693 36,696 -- 146,389 Depreciation and amortiza- tion.......... 41,855 10,291 6,486 (J) 58,632 Taxes, other than on income........ 46,535 12,415 -- 58,950 ---------- -------- --------- --------- Total operating expenses...... 198,083 59,402 6,486 263,971 ---------- -------- --------- --------- Net operating revenues...... 64,847 28,884 (6,486) 87,245 ---------- -------- --------- --------- Other income (expenses): Interest....... (35,999) (11,395) (24,882)(K) (62,820) 9,456 (L) Dividends on preferred securities.... (9,480) -- -- (9,480) Other, net..... (1,814) 1,173 -- (641) ---------- -------- --------- --------- Total other expenses, net.......... (47,293) (10,222) (15,426) (72,941) ---------- -------- --------- --------- Earnings before income taxes.... 17,554 18,662 (21,912) 14,304 Federal and state income taxes (benefit)....... 7,109 7,090 (5,399)(M) 8,800 ---------- -------- --------- --------- Net earnings be- fore preferred stock dividend requirements.... 10,445 11,572 (16,513) 5,504 Preferred stock dividend re- quirements...... -- (653) 653 (N) -- ---------- -------- --------- --------- Net earnings available for common stock.... $ 10,445 $ 10,919 $ (15,860) $ 5,504 ========== ======== ========= ========= Net earnings per share: Basic.......... $ 0.34 $ 0.11 ========== ========= Diluted........ $ 0.32 $ 0.11 ========== ========= Weighted average shares out- standing: Basic.......... 30,894,613 17,663,686 (O) 48,558,299 ========== ========== ========== Diluted........ 32,589,610 17,663,686 (O) 50,253,296 ========== ========== ========== See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements. UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS For The Three Months Ended September 30, 1999 Historical -------------------- Pennsyl- vania Southern Enter- Union prises, Pro Forma ------------------------ Company Inc. Adjustments Combined ---------- -------- ------------ ---------- (thousands of dollars, except shares and per share amounts) Operating revenues........ $ 84,786 $ 31,854 $ -- $ 116,640 Cost of gas and other energy.... 39,277 19,571 -- 58,848 ---------- -------- ---------- --------- Operating margin........ 45,509 12,283 -- 57,792 ---------- -------- ---------- --------- Operating expenses: Operating, maintenance and general... 25,264 10,247 -- 35,511 Depreciation and amortiza- tion.......... 10,848 2,694 1,522 (J) 15,164 Taxes, other than on income........ 7,589 1,948 -- 9,537 ---------- -------- --------- --------- Total operating expenses...... 43,701 14,889 1,622 60,212 ---------- -------- --------- --------- Net operating revenues...... 1,808 (2,606) (1,622) (2,420) ---------- -------- --------- --------- Other income (expenses): Interest....... (8,364) (2,789) (5,220)(K) (15,009) 2,364 (L) Dividends on preferred securities.... (2,370) -- -- (2,370) Other, net..... (1,157) (311) -- (1,468) ---------- -------- --------- --------- Total other expenses, net.......... (11,891) (3,100) (3,856) (18,847) ---------- -------- --------- --------- Loss before income tax benefit......... (10,083) (5,706) (5,478) (21,267) Federal and state income tax benefit......... (3,983) (2,358) (1,350)(M) (7,691) ---------- -------- --------- --------- Net loss before preferred stock dividend re- quirements...... (6,100) (3,348) (4,128) (13,576) Preferred stock dividend re- quirements...... -- (52) 52 (N) -- ---------- -------- --------- --------- Net loss avail- able for common stock........... $ (6,100) $ (3,400) $ (4,076) $ (13,576) ========== ======== ========= ========= Net loss per share: Basic.......... $ (0.20) $ (0.28) ========== ========= Diluted........ $ (0.20) $ (0.28) ========== ========= Weighted average shares out- standing: Basic.......... 30,925,242 17,663,686 (O) 48,588,928 ========== ========== ========== Diluted........ 31,214,696 17,663,686 (O) 48,878,382 ========== ========== ========== See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements. NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS Adjustments to the Unaudited Pro Forma Combined Condensed --------------------------------------------------------- Balance Sheet ------------- (A) Reflects the estimated excess of the purchase price and other transaction costs over the historical cost of the regulated net assets and the estimated fair value of the non-regulated net assets of PEI. (B) Reflects issuance of senior notes with an annual interest rate of 8.25%. The long-term debt is assumed to be utilized: to finance the cash portion of the purchase of PEI common stock and settlement of PEI stock options; to refinance certain debt and related make whole provisions of PEI; to refinance certain short-term borrowings of Southern Union; to pay for certain acquisition costs of $5 million related to change of control agreements; to fund PEI's Director Retirement Plan, Director Deferred Compensation Plan and supplemental retirement benefits and the payments for severance benefits for certain PEI executives; and to pay various professional fees incurred in connection with the merger estimated to total $4 million. Excess cash of $30 million would be available after applica- tion of the net proceeds to the items previously noted. As a result of the application of net proceeds to reduce current short-term borrowings of Southern Union and the timing of seasonal borrowings, additional excess cash should be available in the future for general corporate use. See Note (O). (C) Reflects the costs incurred from make whole provisions from the refinancing of certain debt of PEI. These costs are amortized on a straight line basis over the life of the new debt. (D) Reflects the capitalization of estimated debt issuance costs associated with the senior notes issued in con- nection with the merger as more specifically described in Note (B). These debt issue costs are amortized on a straight line basis over the life of the new debt. (E) Reflects the elimination of common stockholders' equity of PEI. (F) Reflects the issuance of Southern Union common stock to PEI stockholders. See Note (O). (G) Reflects refinancing of certain debt of PEI, and the assumption by Southern Union of PEI's principal utility subsidiary's outstanding two series of mortgage bonds: $30 million of 8.375% mortgage bonds due 2002; and $15 million of 9.34% mortgage bonds due 2019. As a result of Southern Union's solicitation of their holders, the terms of those mortgage bonds were amended to eliminate or modify (generally, to conform to similar terms of other Southern Union long-term debt securities) certain restrictive provisions. The mortgage bonds are secured by the utility assets acquired in the merger. (H) Reflects the repurchase of all of the PG Energy preferred stock prior to the closing of the merger. (I) Reflects refinancing of certain short-term borrowings of under the revolving credit facility of Southern Union. Adjustments to the Unaudited Pro Forma Combined Statement of ------------------------------------------------------------ Operations ---------- (J) Reflects amortization of the estimated excess purchase price over the historical cost of the regulated net assets and the estimated fair value of the non- regulated net assets of PEI on a straight line basis over a 40-year period based on the estimated useful lives of these assets. (K) Reflects interest expense on issuance of senior notes at an interest rate of 8.25%. The long-term debt is assumed to be utilized: to finance the cash portion of the purchase of PEI common stock and settlement of PEI stock options; to refinance certain debt and related make whole provisions of PEI; to refinance certain short-term borrowings of Southern Union; to pay for certain acquisition costs of $5 million related to change of control agreements; to fund PEI's Director Retirement Plan, Director Deferred Compensation Plan and supplemental retirement benefits and the payments for severance benefits for certain PEI executives; and to pay various professional fees incurred in connection with the merger estimated to total $4 million. (L) Reflects the elimination of historical interest expense of PEI and Southern Union as a result of refinancing certain debt in connection with the merger. See Notes (B), (G) and (I). (M) Reflects the income tax consequences at the federal statutory rate of the pro forma adjustments after excluding nondeductible goodwill amortization. (N) Reflects the elimination of preferred stock dividend requirement due to the repurchase of all outstanding PG Energy preferred stock prior to the closing of the merger. (O) Reflects the issuance of Southern Union common stock to PEI stockholders at an exchange ratio of 1.62488 based on an average trading price of $19.69375 for Southern Union common stock for the ten trading-day period ending on October 27, 1999. The actual exchange ratio will be based upon the average closing price per share for Southern Union common stock for the ten trading-day period ending on the third full trading day before the day the PEI merger is completed. All PEI stock options are assumed to be settled in cash based on the dif- ference between the total merger consideration per share of $35.00 and the exercise price of such stock options. (c) Exhibits 2.1 Agreement of Merger between Southern Union Company and Pennsylvania Enterprises, Inc. dated as of June 7, 1999 (incorporated herein by reference from Exhibit 2 to the Registrant's Current Report on Form 8-K filed June 15, 1999 (File No. 1-6407). 23.1 Consent of PricewaterhouseCoopers LLP 23.2 Consent of Arthur Andersen LLP 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 November 18, 1999 By RONALD J. ENDRES --------------------- ------------------ Ronald J. Endres Executive Vice President and Chief Financial Officer Date November 18, 1999 By DAVID J. KVAPIL --------------------- ----------------- David J. Kvapil Senior Vice President and Corporate Controller (Principal Accounting Officer) EX-23.1 2 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in this Form 8-K of our report dated February 17, 1999 relating to the Current Report on financial statements and financial statement schedules, which appears in Pennsylvania Enterprises, Inc.'s Annual Report on Form 10-K for the year ended December 31, 1998. PRICEWATERHOUSECOOPERS LLP -------------------------- PricewaterhouseCoopers LLP Philadelphia, Pennsylvania November 18, 1999 EX-23.2 3 Exhibit 23.2 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference in this Form 8-K of our report dated February 19, 1997 included in Pennsylvania Enterprises, Inc.'s Form 10-K for the year ended December 31, 1998 and to all references to our Firm included in this Form 8-K. It should be noted that we have not audited any financial statements of the company subsequent to December 31, 1996 or performed any audit procedures subsequent to the date of our report. ARTHUR ANDERSEN LLP ------------------- Arthur Andersen LLP New York, New York November 18, 1999 -----END PRIVACY-ENHANCED MESSAGE-----