<PAGE>
EXHIBIT 99.5
PART I. FINANCIAL INFORMATION
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------ ------------------------------
1999 1998 1999 1998
------------------------------ --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
(Thousands of Dollars)
OPERATING REVENUES:
Energy products and services -
Regulated .................................. $
16,115 $ 15,177 $ 128,517 $ 105,187
Nonregulated ...............................
15,738 8,112 48,959 25,254
Pipeline construction and services ............
3,391 3,611 8,727 9,219
-------- -------- -------- -------
Total operating revenues ................
35,244 26,900 186,203 139,660
-------- -------- -------- -------
OPERATING EXPENSES:
Cost of gas and other energy ...................
19,571 13,105 111,795 77,752
Operation and maintenance ......................
13,610 11,681 38,455 34,038
Depreciation ...................................
2,895 2,691 8,611 7,902
Income taxes ...................................
(2,301) (2,098) 3,783 1,365
Taxes other than income taxes ..................
1,948 1,780 9,911 8,757
-------- -------- -------- -------
Total operating expenses ....................
35,723 27,159 172,555 129,814
-------- -------- -------- -------
OPERATING INCOME (LOSS) ............................
(479) (259) 13,648 9,846
OTHER INCOME (DEDUCTIONS), NET .....................
(80) 635 (60) 1,570
-------- -------- -------- -------
INCOME (LOSS) BEFORE INTEREST CHARGES ..............
(559) 376 13,588 11,416
-------- -------- -------- -------
INTEREST CHARGES:
Interest on long-term debt .....................
2,644 2,668 7,762 7,701
Other interest .................................
155 138 555 407
Allowance for borrowed funds used
during construction ...........................
(10) (38) (42) (90)
-------- ------- ------- -------
Total interest charges ..................
2,789 2,768 8,275 8,018
-------- ------- ------- -------
INCOME (LOSS) BEFORE SUBSIDIARY'S PREFERRED
STOCK DIVIDENDS ...............................
(3,348) (2,392) 5,313 3,398
SUBSIDIARY'S PREFERRED STOCK DIVIDENDS .............
52 319 156 961
-------- ------- ------- -------
NET INCOME (LOSS) .................................. $
(3,400) $ (2,711) $ 5,157 $ 2,437
========= ======= ======= =======
EARNINGS (LOSS) PER SHARE OF COMMON STOCK:
Basic ......................................... $
(0.31) $ (0.27) $ 0.48 $ 0.25
========= ======== ======== =======
Diluted ....................................... $
(0.31) $ (0.27) $ 0.47 $ 0.24
========= ======== ======== =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic .........................................
10,856,815 10,062,702 10,759,034 9,906,282
=========== ========== ========== =========
Diluted .......................................
11,004,036 10,141,608 10,861,501 9,989,804
=========== ========== ========== =========
CASH DIVIDENDS PER SHARE ........................... $
0.30 $ 0.30 $ 0.90 $ 0.90
=========== ========== ========== =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial
statements.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------------- --------------
<S> <C> <C> <C> <C> <C> <C>
(Thousands of Dollars)
ASSETS
UTILITY PLANT:
At original cost ...........................................
$ 389,666 $ 376,685
Accumulated depreciation ...................................
(102,467) (95,735)
---------------- ----------------
287,199 280,950
---------------- -----------------
OTHER PROPERTY AND INVESTMENTS:
Nonutility property and equipment ..........................
36,725 31,816
Accumulated depreciation ...................................
(6,200) (5,460)
Other ......................................................
2,411 2,296
---------------- -----------------
32,936 28,652
---------------- -----------------
CURRENT ASSETS:
Cash and cash equivalents ..................................
846 807
Restricted cash - common stock subscribed (Note 3)..........
- 452
Accounts receivable -
Customers ...............................................
20,485 26,259
Others ..................................................
756 811
Reserve for uncollectible accounts ......................
(1,901) (1,465)
Unbilled revenues ..........................................
3,520 12,247
Materials and supplies, at average cost ....................
3,322 3,053
Gas held by suppliers, at average cost .....................
26,519 22,676
Deferred cost of gas and supplier refunds, net .............
- 6,058
Prepaid income taxes .......................................
1,903 2,090
Prepaid expenses and other .................................
4,733 2,713
---------------- -----------------
60,183 75,701
---------------- -----------------
DEFERRED CHARGES:
Regulatory assets -
Deferred taxes collectible ..............................
31,558 31,097
Other ...................................................
8,144 8,598
Unamortized debt expense ...................................
842 1,014
Other ......................................................
94 190
---------------- -----------------
40,638 40,899
---------------- -----------------
TOTAL ASSETS ...................................................
$ 420,956 $ 426,202
================ =================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial
statements.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
----------------- ------------------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
<S> <C> <C> <C> <C> <C> <C>
CAPITALIZATION:
Common shareholders' investment (Note 3)
................................. $137,832
$132,326
Preferred stock of PG Energy -
Not subject to mandatory redemption
................................... -
4,831
Subject to mandatory redemption
....................................... -
240
Long-term debt
...........................................................
95,000 98,000
---------------- ----------------
232,832 235,397
---------------- ----------------
CURRENT LIABILITIES:
Current portion of long-term debt
........................................ 51,007
81,348
Preferred stock of PG Energy
called for redemption
.................................................
4,985 -
Notes payable
............................................................
26,590 6,200
Accounts payable
.........................................................
17,664 22,370
Deferred cost of gas and supplier refunds, net
........................... 4,846
-
Accrued general business and realty taxes
................................ 1,511
1,764
Accrued interest
.........................................................
1,264 1,811
Other
....................................................................
1,799 1,924
---------------- ----------------
109,666 115,417
---------------- ----------------
DEFERRED CREDITS:
Deferred income taxes
....................................................
63,352 60,923
Unamortized investment tax credits
....................................... 4,294
4,424
Operating reserves
.......................................................
3,189 2,836
Other
....................................................................
7,623 7,205
---------------- ----------------
78,458 75,388
---------------- ----------------
COMMITMENTS AND CONTINGENCIES (Note 6)
TOTAL CAPITALIZATION AND LIABILITIES
......................................... $420,956
$426,202
</TABLE>
The accompanying notes are an integral part of the
consolidated financial
statements.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1999 1998
------------ -----------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income
...............................................................
$ 5,157 $ 2,437
Gain on sales of other property
.......................................... (143)
(2,275)
Effects of noncash charges to income -
Depreciation
.........................................................
8,697 7,970
Deferred income taxes, net
........................................... 1,967
2,336
Provisions for self insurance
........................................ 1,118
560
Other, net
...........................................................
2,407 1,576
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and unbilled revenues
............................... 14,988 22,777
Gas held by suppliers
........................................... (3,843)
(4,549)
Accounts payable
................................................ (3,851)
(373)
Deferred cost of gas and supplier refunds, net
.................. 10,904 (6,030)
Other current assets and liabilities, net
....................... (3,027) (8,624)
Other operating items, net
............................................... (1,577)
(1,954)
------- -------
Net cash provided by operating activities
...................... 32,797 13,851
------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant
............................................... (15,323)
(19,955)
Additions to nonutility property
......................................... (4,621)
(13,179)
Proceeds from the sales of other property
................................ 211 2,855
Other, net
...............................................................
93 55
------- -------
Net cash used for investing activities
.......................... (19,640) (30,224)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock
................................................. 10,485
9,049
Common stock subscribed, net
............................................. -
487
Repurchase of subsidiary's preferred stock
............................... (86) (128)
Dividends on common stock
................................................ (9,708)
(8,926)
Repayment of long-term debt
.............................................. (33,000)
-
Net increase in bank borrowings
.......................................... 19,194
14,110
Other, net
...............................................................
(3) 11
------- ------
Net cash (used for)/provided by financing activities
............ (13,118) 14,603
------- ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
........................... 39 (1,770)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
............................... 807 2,202
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD
..................................... $ 846
$ 432
====== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized)
.................................. $ 8,665 $
8,178
======== ======
Income taxes
..........................................................
$ 1,725 $ 2,679
======== ======
</TABLE>
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business. Pennsylvania Enterprises, Inc. (the
"Company") is
a holding company which, through its subsidiaries, is engaged in
both regulated
and nonregulated activities. The Company's regulated activities are
conducted by
its principal subsidiary, PG Energy Inc. ("PG Energy"), a
regulated public
utility, and PG Energy's wholly-owned subsidiary, Honesdale
Gas Company
("Honesdale"), also a regulated public utility. Together PG Energy
and Honesdale
distribute natural gas to a thirteen-county area in northeastern
Pennsylvania, a
territory that includes the cities of Scranton, Wilkes-Barre and
Williamsport.
In 1998, PG Energy and Honesdale collectively accounted for
approximately 77% of
the Company's operating revenues.
The Company, through its other subsidiaries, PG Energy
Services Inc.
("Energy Services"), PEI Power Corporation ("Power Corp"),
Theta Land
Corporation ("Theta") and Keystone Pipeline Services, Inc.
("Keystone"), a
wholly-owned subsidiary of Energy Services, is engaged in various
nonregulated
activities. These activities include the sale of natural
gas, propane,
electricity and other energy-related products and services; the
construction,
maintenance and rehabilitation of utility facilities, primarily
natural gas
distribution pipelines; and the sale of property for residential,
commercial and
other development.
Principles of Consolidation. The consolidated financial
statements
include the accounts of the Company and its subsidiaries, PG
Energy (including
Honesdale), Energy Services (including Keystone), Power Corp and
Theta. All
material intercompany accounts have been eliminated in consolidation.
Both PG Energy and Honesdale (collectively referred to as
the "Regulated
Subsidiaries") are subject to the jurisdiction of the
Pennsylvania Public
Utility Commission (the "PPUC") for rate and accounting purposes.
The financial
information of the Regulated Subsidiaries that is
incorporated in these
consolidated financial statements has been prepared in accordance
with generally
accepted accounting principles, including the provisions of
Financial Accounting
Standards Board ("FASB") Statement 71, "Accounting for the
Effects of Certain
Types of Regulation," which give recognition to the rate and
accounting
practices of regulatory agencies such as the PPUC.
Interim Financial Statements. The interim consolidated
financial
statements included herein have been prepared by the Company
without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission.
Certain information and footnote disclosures normally included
in financial
statements prepared in accordance with generally accepted accounting
principles
have been condensed or omitted pursuant to such rules and
regulations, although
the Company believes that the disclosures are adequate to make the
information
presented not misleading.
The results for the interim periods are not indicative of
the results to
be expected for the year, primarily due to the effect of seasonal
variations in
weather on the sale of natural gas. However, in the opinion of
management, all
adjustments, consisting of only normal recurring accruals,
necessary to present
fairly the results for the interim periods have been
reflected in the
consolidated financial statements. It is suggested that these
consolidated
financial statements be read in conjunction with the
consolidated financial
statements and the notes thereto included in the Company's latest
annual report
on Form 10-K.
Use of Accounting Estimates. The preparation of financial
statements in
conformity with generally accepted accounting principles requires
management to
make estimates and assumptions that affect the reported amounts
of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of
the financial statements and the reported amounts of revenues
and expenses
during the reporting period. These estimates involve judgments with
respect to,
among other things, various future economic factors and regulatory
matters which
are difficult to predict and are beyond the control of the Company.
Therefore,
actual amounts could differ from these estimates.
(2) RATE MATTERS
Rate Increase. By Order adopted October 16, 1998, the PPUC
approved an
overall 4.1% increase in PG Energy's base rates, designed to
produce $7.4
million of additional annual revenue, effective October 17, 1998.
Gas Cost Adjustments. The provisions of the Pennsylvania
Public Utility
Code require that the tariffs of local gas distribution companies
("LDCs") be
adjusted on an annual basis, and, in the case of larger LDCs such
as PG Energy,
on an interim basis when circumstances dictate, to reflect
changes in their
purchased gas costs. The procedure includes a process for the
reconciliation of
actual gas costs incurred and actual revenues received and also
provides for the
refund of any overcollections or the recoupment of any
undercollections of gas
costs, plus interest in either case.
In accordance with these procedures PG Energy has been
permitted to make
the following changes since January 1, 1998, to the gas costs
contained in its
tariff rates:
<TABLE>
<CAPTION>
Change in
Calculated
Effective Rate per MCF
Increase (Decrease)
Date From
To in Annual Revenue
---------------- -----------
------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
September 1, 1999 ....................... $ 4.15 $
4.00 $(3,500,000)
June 1, 1999 ............................ 4.39
4.15 (5,800,000)
March 1, 1999 ........................... 4.53
4.39 (3,200,000)
December 1, 1998 ........................ 4.25
4.53 7,100,000
September 1, 1998 ....................... 4.18
4.25 1,900,000
June 1, 1998 ............................ 3.95
4.18 5,800,000
March 1, 1998 ........................... 4.05
3.95 (2,100,000)
</TABLE>
The changes in gas rates on account of purchased gas costs
have no effect
on earnings since the change in revenue is offset by a
corresponding change in
the cost of gas.
(3) RESTRICTED CASH - COMMON STOCK SUBSCRIBED
Until its suspension on June 7, 1999, as a result of the
proposed merger
with Southern Union Company (see Note 7 of these Notes to
Consolidated Financial
Statements), the Company's Customer Stock Purchase Plan (the
"Customer Plan")
provided the residential customers of all the Company's
subsidiaries with a
method of purchasing shares of the Company's common stock without
payment of
brokerage commission, service charge or other regular expense.
On January 1,
1999, the Company issued 19,177 shares of its common stock for
an aggregate
consideration of $446,000 with respect to payments received
pursuant to the
Customer Plan during the subscription period ended December 31,
1998. Such
payments are reflected under the captions "Restricted cash -
common stock
subscribed" and "Common shareholders' investment" in the
consolidated balance
sheet as of December 31, 1998.
(4) OPERATING SEGMENTS
The Company has three principal operating segments:
o Regulated Energy Products and Services, principally
the purchase,
distribution and sale of natural gas in thirteen
counties in
northeastern Pennsylvania by the Regulated
Subsidiaries ("Energy
Products and Services - Regulated")
o Nonregulated Energy Products and Services, principally
the sale of
natural gas, propane, electricity and other
energy-related
products and services by Energy Services,
generally in a
twenty-six county area in northeastern and central
Pennsylvania,
and the generation and sale of electricity and
steam by Power
Corp. ("Energy Products and Services - Nonregulated")
o Pipeline Construction and Services, principally the
construction,
maintenance and rehabilitation of utility facilities
throughout
the eastern United States by Keystone ("Pipeline
Construction and
Services").
<PAGE>
Information regarding the operating segments for the three
and nine-month
periods ended September 30, 1999 and 1998, is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Energy products and services -
Regulated ......................................... $
16,165 $ 15,223 $ 128,628 $ 105,381
Nonregulated ......................................
16,450 8,759 50,479 25,902
Pipeline construction and services .................
3,391 3,611 8,727 9,219
Intercompany eliminations ..........................
(762) (693) (1,631) (842)
------------ ------------ ----------- ------------
Total ........................................... $
35,244 $ 26,900 $ 186,203 $ 139,660
============ ============ ============ ============
Operating income (loss):
Energy products and services -
Regulated ......................................... $
(170) $ (468) $ 14,398 $ 9,394
Nonregulated ......................................
53 (19) 592 506
Pipeline construction and services .................
(73) 195 (304) 177
Intercompany eliminations and
Corporate expenses ................................
(289) 33 (1,038) (231)
----------- ------------ ------------ ------------
Total ........................................... $
(479) $ (259) $ 13,648 $ 9,846
=========== ============ ============ ============
</TABLE>
(5) ACCOUNTING CHANGES
Accounting for Derivative Instruments and Hedging
Activities. In June
1998, FASB Statement 133, "Accounting for Derivative Instruments
and Hedging
Activities" was issued. The provisions of this statement, as
amended which are
effective for fiscal quarters beginning after June 15, 2000,
establish
accounting and reporting standards for derivative instruments,
including certain
derivative instruments embedded in other contracts, and for hedging
activities.
While the Company generally has not used derivative instruments,
it expects to
adopt, to the extent necessary, the provisions of FASB
Statement 133 in the
third quarter of 2000. The impact of such adoption on the
Company's future
financial condition and results of operations will depend upon
a number of
factors, including the extent to which the Company may use
derivative
instruments, and the designation and effectiveness of such
derivative hedging
market risk.
(6) COMMITMENTS AND CONTINGENCIES
Environmental Matters. PG Energy, like many gas distribution
companies,
once utilized manufactured gas plants in connection with providing
gas service
to its customers. None of these plants has been in operation
since 1972, and
several of the plant sites are no longer owned by PG Energy.
Pursuant to the
Comprehensive Environmental Response, Compensation and Liability
Act of 1980
("CERCLA"), PG Energy filed notices with the United States
Environmental
Protection Agency (the "EPA") with respect to the former plant
sites. None of
the sites is or was formerly on the proposed or final National
Priorities List.
The EPA has conducted site inspections and made preliminary
assessments of each
site and has concluded that no further remedial action is
planned. The
conclusion by the EPA that it anticipates no further remedial
action with
respect to the sites at which PG Energy operated manufactured gas
plants does
not, however, constitute a legal prohibition against further
regulatory action
under CERCLA or other applicable federal or state law, and even in
the absence
of any further action by the EPA, some of the sites may
ultimately require
remediation. In any event, the Company does not believe that
additional costs,
if any, related to these manufactured gas plant sites would be
material to its
financial position or results of operations since environmental
remediation
costs generally are recoverable through rates over a period of time.
(7) PROPOSED MERGER
On June 7, 1999, the Company's Board of Directors approved
a definitive
merger agreement with Southern Union Company ("Southern
Union"), an
international energy company headquartered in Austin, Texas. In
accordance with
the terms of the merger agreement, the Company will merge with and
into Southern
Union and Southern Union will be the surviving company. On
the same day,
following the merger of the Company and Southern Union, Honesdale
will be merged
with and into PG Energy and immediately thereafter PG Energy will be
merged into
Southern Union.
The merger agreement is subject to the approval of the
shareholders of
both the Company and Southern Union, which was obtained at
meetings of the
shareholders of the respective companies held on October 19,
1999, as well as
various regulatory approvals, all of which are expected to be
obtained by
November 1, 1999, and other customary conditions.
In connection with the merger, Southern Union and the
Company are
soliciting consents from the holders of PG Energy's First
Mortgage Bonds and
Senior Notes to proposed amendments to certain of the covenants of
the Company
regarding such debt. If the required consents are obtained,
the proposed
amendments will become effective immediately following the merger
of PG Energy
into Southern Union.
The merger agreement with Southern Union provides for each
outstanding
share of the Company's common stock to be exchanged for $32.00 in
Southern Union
common stock and $3.00 in cash, subject to adjustment for market
fluctuations in
the price of Southern Union common stock. Although there can be
no certainty,
the Company currently anticipates that the merger with Southern
Union will be
consummated by the end of 1999.
