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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)
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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
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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.
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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.
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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.
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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.
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NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS
Adjustments to the Unaudited Pro Forma Combined Condensed
---------------------------------------------------------
Balance Sheet
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(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
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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
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Ronald J. Endres
Executive Vice President and
Chief Financial Officer
Date November 18, 1999 By DAVID J. KVAPIL
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David J. Kvapil
Senior Vice President and
Corporate Controller
(Principal Accounting Officer)
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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
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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
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Arthur Andersen LLP
New York, New York
November 18, 1999