<PAGE>
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) September 20, 2000
SOUTHERN UNION COMPANY
(Exact name of registrant as specified in its charter)
Delaware 1-6407 75-0571592
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
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
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 20, 2000, Southern Union Company ("Southern Union" or the
"Company") completed the acquisition of Valley Resources, Inc. (Valley
Resources) for approximately $125 million in cash plus the assumption of $30
million in long-term debt, pursuant to the terms of the Agreement of Merger
dated as of November 30, 1999 by and between Southern Union and Valley
Resources. The Agreement of Merger is included as our exhibit to this Current
Report on Form 8-K and incorporated herein by reference. Valley Resources is
engaged in natural gas distribution operating as Valley Gas Company and Bristol
and Warren Gas Company which are now part of the New England Division of
Southern Union. The non-utility subsidiaries of Valley Resources are now
subsidiaries of Southern Union. Valley Resources provides natural gas utility
service to more than 64,000 customers. The non-utility subsidiaries rent and
sell appliances, offer a service contract program, sell liquid propane in Rhode
Island and nearby Massachusetts, and distribute as a wholesaler franchised lines
to plumbing and heating contractors. Valley Resources will continue to operate
in these fields.
On September 28, 2000, Southern Union completed the acquisition of Providence
Energy Corporation (ProvEnergy) for approximately $270 million in cash plus the
assumption of $90 million in long-term debt. The ProvEnergy natural gas
distribution operations are Providence Gas and North Attleboro Gas. The
acquisition was pursuant to the terms of the Agreement of Merger dated as of
November 15, 1999 by and between Southern Union and ProvEnergy. The Agreement of
Merger is included as an exhibit to this Current Report on Form 8-K and
incorporated herein by reference. Providence Gas serves approximately 168,000
natural gas customers in Rhode Island and Massachusetts. North Attleboro Gas
serves approximately 6,000 customers in Massachusetts. These operations are also
now part of the New England Division of the Company. Subsidiaries of the Company
acquired in the ProvEnergy merger are ProvEnergy Oil Enterprises, Inc.,
Providence Energy Services, Inc., and ProvEnergy Power Company, LLC. ProvEnergy
Oil Enterprises, Inc. operates a fuel oil distribution business through its
subsidiary, ProvEnergy Fuels, Inc. (ProvEnergy Fuels). ProvEnergy Fuels serves
over 14,000 residential and commercial customers in Rhode Island and
Massachusetts. Providence Energy Services, Inc., whose operations are planned to
be sold, markets natural gas and energy services throughout New England.
ProvEnergy Power Company owns 50% of Capital Center Energy Company, LLC., a
joint venture formed between ProvEnergy and ERI Services, Inc. to provide retail
power. ProvEnergy, except for Providence Energy Services, Inc. as noted
previously, will continue to operate in these fields.
Also on September 28, 2000, Southern Union completed the acquisition of Fall
River Gas Company (Fall River Gas) for approximately 1.5 million shares of
Southern Union common stock and approximately $27 million in cash plus
assumption of $20 million in long-term debt. The acquisition was pursuant to the
terms of the Agreement of Merger dated as of October 4, 1999 by and between
Southern Union and Fall River Gas. The Agreement of Merger is included as an
exhibit to this Current Report on Form 8-K and incorporated herein by reference.
Also now a part of the New England Division of the Company, Fall River Gas
serves approximately 48,000 customers in Massachusetts. Fall River Gas'
non-regulated subsidiary, Fall River Gas Appliance Company, Inc., is now a
subsidiary of Southern Union and rents water heaters and conversion burners
(primarily for residential use) in Fall River Gas' service area. Fall River Gas
will continue to operate in these fields.
The aforementioned acquisitions will be accounted for under the purchase method.
On August 28, 2000 the Company entered into a short-term bank note (the Term
Note) to fund (i) the cash portion of the consideration to be paid to the Fall
River Gas' stockholders; (ii) the all cash consideration to be paid to the
ProvEnergy and Valley Resources stockholders; (iii) the refinancing of $103
million of debt including long-term debt of Valley Resources; and (iv) all
related acquisition costs with these mergers. The Term Note expires August 27,
2001 but may be extended at the Company's option through August 26, 2002 for a
12.5 basis point fee. The interest rate on borrowings under the Term Note is a
floating rate based on LIBOR or prime interest rates.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Businesses Acquired.
(1) The following audited financial statements and related
documents for Valley Resources are incorporated herein by
reference from Valley Resources' Form 10-K (File No. 1-7924)
for the year ended August 31, 1999:
Consolidated Statements of Earnings for each of the
three years in the period ended August 31, 1999;
Consolidated Statements of Cash Flows for each of the
three years in the period ended August 31, 1999;
Consolidated Balance Sheets -- August 31, 1999 and
1998; Consolidated Statements of Changes in Common
Stock Equity for each of the three years in the period
ended
August 31, 1999
Consolidated Statements of Capitalization -- August 31,
1999 and 1998; Notes to Consolidated Financial
Statements; and
. Report of Independent Certified Public Accountants.
(2) The following unaudited interim financial statements are
incorporated herein by reference from Valley Resources' Form
10-Q (File No. 1-7924) for the quarter ended May 31, 2000:
Consolidated Condensed Statements of Earnings -- for
the three and nine months ended May 31, 2000 and
May 31, 1999;
Consolidated Condensed Balance Sheets -- May 31, 2000
and August 31, 1999;
Consolidated Condensed Statements of Cash Flows -- for
the nine months ended May 31, 2000 and May 31,
1999; and
Notes to Consolidated Financial Statements.
(3) The following audited financial statements and related
documents for ProvEnergy are incorporated by reference from
ProvEnergy's Form 10-K (File No. 1-10032) for the year ended
September 30, 1999:
Consolidated Balance Sheets September 30,1999 and 1998;
Consolidated Statements of Income for the years ended
September 30, 1999, 1998 and 1997; Consolidated
Statements of Cash Flows for the years ended September
30, 1999, 1998 and 1997; Consolidated Statements of
Capitalization -- September 30, 1999 and 1998;
Consolidated Statements of Changes in Common
Stockholders' Investment for the years ended September
30, 1999, 1998 and 1997; Notes to Consolidated
Financial Statements; and Report of Independent Public
Accountants.
(4) The following unaudited interim financial statements are
incorporated herein by reference from ProvEnergy's Form 10-Q
(File No. 1-10032) for the quarter ended June 30, 2000:
Consolidated Statements of Income for the three and
nine months ended June 30, 2000 and 1999; Consolidated
Balance Sheets as of June 30, 2000, June 30, 1999 and
September 30, 1999; Consolidated Statements of Cash
Flows for the nine months ended June 30, 2000 and 1999;
Consolidated Statements of Capitalization as of June
30, 2000, June 30, 1999 and September 30, 1999; Notes
to Consolidated Financial Statements.
<PAGE>
(5) The following audited financial statements and related
documents for Fall River Gas are incorporated herein by
reference from Fall River Gas' Form 10-K (File No.
0-449) for the year ended September 30, 1999:
Report of Independent Public Accountants;
Consolidated Statements of Income for the years
ended September 30, 1999, 1998 and 1997;
Consolidated Statements of Retained Earnings for
the years ended September 30, 1999, 1998 and 1997;
Consolidated Statements of Retained Earnings for
the years ended September 30, 1999, 1998 and 1997;
Consolidated Balance Sheets at September 30, 1999
and 1998; Consolidated Statements of Cash Flows for
the years ended September 30, 1999, 1998 and 1997;
Notes to Consolidated Financial Statements.
(6) The following unaudited interim financial statements are
incorporated herein by reference for Fall River Gas' Form
10-Q (File No. 0-449) for the quarter ended June 30, 2000:
Consolidated Condensed Balance Sheets -- June 30, 2000
and September 30, 1999; Consolidated Condensed
Statements of Income and Retained Earnings -- three and
nine months ended June 30, 2000 and 1999; Consolidated
Statements of Cash Flows -- nine months ended June 30,
2000 and 1999; and Notes to Consolidated Condensed
Financial Statements.
(b) Pro Forma Financial Information.
The following Unaudited Pro Forma Combined Condensed Financial
Statements present the combined finan-cial data of Southern
Union, Pennsylvania Enterprises, Inc. (PEI), Fall River Gas,
ProvEnergy and Valley Resources, including their respective
subsidiaries, after giving effect to Southern Union's merger
with each of them. The PEI merger, completed on November 4,
1999, was, and the Fall River Gas, ProvEnergy and Valley
Resources mergers will be, accounted for as a purchase. The
Unaudited Pro Forma Com-bined Condensed Financial Statements
also give effect to Southern Union's issuance of $300 million of
senior notes that was completed on November 3, 1999, in
anticipation of the PEI merger, Term Note financing for the
acquisi-tions by merger of Fall River Gas, ProvEnergy and Valley
Resources, and the assumption of certain debt of the acquired
companies.
The Unaudited Pro Forma Combined Condensed Balance Sheet as of
June 30, 2000, gives effect to the previously identi-fied
acquisitions and financing transactions as if they had occurred
on that date. The Unaudited Pro Forma Combined Condensed
Statement of Operations for the year ended June 30, 2000, give
effect to the previously identified acquisitions and financing
transactions as if they had occurred on July 1, 1999, which is
at the beginning date for such period.
The fiscal year of Southern Union ends on June 30. The fiscal
year of PEI ended on December 31. The fiscal years of Fall River
Gas and ProvEnergy ended on September 30. The fiscal year of
Valley Resources ended on August 31. Accordingly, the Unaudited
Pro Forma Combined Condensed Balance Sheet as of June 30, 2000,
is derived from the June 30, 2000, balance sheets for each of
Southern Union, Fall River Gas and ProvEnergy, and the May 31,
2000, balance sheet of Valley Resources. Also, the Unaudited Pro
Forma Combined Condensed Statement of Operations for the year
ended June 30, 2000 has been prepared using comparable financial
statement periods of PEI, Fall River Gas and ProvEnergy, and the
results of operations for the twelve-month period ended May 31,
2000 of Valley Resources. The following Unaudited Pro Forma
Combined Condensed Financial Statements have been prepared from,
and should be read in conjunction with, those historical
financial statements and related notes thereto of Southern
Union, PEI, Fall River Gas, ProvEnergy and Valley Resources.
<PAGE>
The historical financial statements of the acquired companies
that appear in or were used for the Unaudited Pro Forma Combined
Condensed Financial Statements include or required certain
reclassifications to conform to Southern Union's presentation.
These reclassifications have no impact on net income or total
stockholders' equity.
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 the acquired
companies and an estimate of the fair value of the non-regulated
assets and liabilities of the acquired companies, plus estimated
acquisition costs for the pending transactions. The estimate of
the fair value of the non-regulated assets are preliminary and
may be revised to reflect independent appraisals, which have not
been completed.
The Unaudited Pro Forma Combined Condensed Financial Statements
are based on the assumption that upon completion of the Fall
River Gas merger each Fall River Gas stockholder will receive,
in exchange for each share of Fall River Gas com-mon stock he or
she owns, a combination of Southern Union common stock and/or
cash worth in the aggregate $23.50; the cash consideration is
limited to 50% of the aggregate consideration paid to all Fall
River Gas stockholders. The following pro forma adjustments
reflect a payment of 50% cash and 50% Southern Union common
stock for each share of Fall River Gas common stock.
The following Unaudited Pro Forma Combined Condensed Financial
Statements are presented in accordance with the assumptions set
forth below for purposes of illustration only and are not
necessarily indicative of the financial position or operating
results that would have occurred if the previously identified
acquisitions and financing transactions had been consummated on
the date as of which, or at the beginning of the periods for
which, they are being given effect nor are they 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 anti-cipated as a result
of the mergers.
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
June 30, 2000
ASSETS
<TABLE>
<CAPTION>
Historical
------------------------------------------------------
Southern Fall River Providence Valley
Union Gas Energy Resources Pro Forma
Company (1) Company Corporation Inc. (2) Adjustments Combined
------------ ----------- ----------- --------- ----------- --------
(thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Property, plant and equipment .................. $1,610,269 $ 63,673 $ 353,477 $ 89,538 $ -- $ 2,116,957
Less accumulated depreciation and amortization . (509,947) (24,276) (132,124) (36,457) -- (702,804)
---------- --------- ---------- -------- -------- -----------
1,100,322 39,397 221,353 53,081 -- 1,414,153
Additional purchase cost assigned to utility
plant, net..................................... 386,839 -- -- -- 303,546 (A) 690,385
---------- --------- ----------- -------- -------- ----------
Net property, plant and equipment ........... 1,487,161 39,397 221,353 53,081 303,546 2,104,538
Current assets ................................. 351,741 11,739 49,453 18,870 25,959 (B) 457,762
Deferred charges ............................... 145,006 531 42,295 23,819 1,359 (C) 213,010
Investment securities .......................... 10,489 -- 4,320 1,674 -- 16,483
Real estate and other .......................... 27,063 4,251 3,778 5,241 -- 40,333
---------- --------- ---------- -------- -------- -----------
Total ....................................... $2,021,460 $ 55,918 $ 321,199 $102,685 $330,864 $ 2,832,125
========== ========= ========== ======== ======== ===========
STOCKHOLDERS' EQUITY AND LIABILITIES
Common stockholders' equity .................... $ 735,854 $ 18,871 $ 98,064 $ 38,325 $(155,260)(D) $ 761,978
26,124 (E)
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust .............. 100,000 -- -- -- -- 100,000
Long-term debt and capital lease obligation .... 733,774 19,500 88,009 32,083 460,000 (F) 1,333,366
--------- --------- ---------- -------- --------- ----------
Total capitalization ........................ 1,569,628 38,371 186,073 70,408 330,864 2,195,344
Current liabilities ............................ 160,470 9,437 100,831 14,492 -- 285,230
Deferred credits and other .................... 106,823 3,577 9,710 4,514 -- 124,624
Accumulated deferred income taxes .............. 184,539 4,533 24,585 13,271 -- 226,928
Commitments and contingencies ---------- ---------- ---------- --------- --------- -----------
Total ....................................... $2,021,460 $ 55,918 $ 321,199 $ 102,685 $ 330,864 $ 2,832,126
========== ========== ========== ========= ========= ===========
(1) Amounts include Pennsylvania Enterprises, Inc.
(2) Amounts presented are as of May 31, 2000.
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial Statements.
</TABLE>
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
For The Twelve Months Ended June 30, 2000
<TABLE>
<CAPTION>
Historical
-------------------------------------------------------------
Southern Pennsylvania Fall River Providence Valley
Union Enterprises Gas Energy Resources Pro Forma
Company Inc. Company Corporation Inc. (1) Adjustments Combined
---------- ------------ ----------- ----------- ---------- ----------- ----------
(thousands of dollars, except shares and per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Operating revenues .................... $ 831,704 $ 48,486 $ 43,285 $ 233,310 $ 88,696 $ -- $1,245,481
Cost of gas and other energy .......... 497,698 30,342 23,732 128,045 51,718 -- 731,535
---------- ----------- ----------- ----------- ---------- --------- ----------
Operating margin .................... 334,006 18,144 19,553 105,265 36,978 -- 513,946
Operating expenses:
Operating, maintenance and general.. 136,587 14,116 12,843 55,650 19,329 -- 238,525
Depreciation and amortization ...... 55,140 3,548 2,154 17,001 3,575 9,763(G) 91,181
Taxes, other than on income ........ 52,165 2,629 1,544 14,544 4,263 -- 75,145
---------- ----------- ----------- ----------- ---------- --------- ---------
Total operating expenses ......... 243,892 20,293 16,541 87,195 27,167 9,763 404,851
---------- ----------- ----------- ----------- ---------- --------- ---------
Net operating revenues ........... 90,114 (2,149) 3,012 18,070 9,811 (9,763) 109,095
Other income (expenses):
Interest ........................... (51,492) (3,935) (1,632) (9,291) (3,084) (45,755)(H) (110,954)
4,235 (I)
Dividends on preferred securities... (9,480) -- -- -- -- -- (9,480)
Other, net ......................... (7,472) (2,352) 1,456 (225) (172) -- (8,765)
--------- ----------- ----------- ---------- --------- --------- ---------
Total other expenses, net ........ (68,444) (6,287) (176) (9,516) (3,256) (41,520) (129,199)
--------- ----------- ----------- ---------- --------- --------- ---------
Earnings (loss) before income taxes
(benefit) .......................... 21,670 (8,436) 2,836 8,554 6,555 (51,283) (20,104)
Federal and state income taxes (benefit) 10,618 (3,206) 1,138 3,347 2,172 (14,532)(J) (463)
--------- ----------- ----------- ---------- --------- --------- --------
Net earnings (loss) before preferred stock
dividend requirements .............. 11,052 (5,230) 1,698 5,207 4,383 (36,751) (19,641)
Preferred stock dividend requirements.. -- (68) -- (313) -- 381 (K) --
--------- ----------- ----------- ---------- --------- --------- --------
Net earnings (loss) available for common
stock ............................ $ 11,052 $ (5,298) $ 1,698 $ 4,894 $ 4,383 $(36,370) $ (19,641)
========= =========== =========== ========== ========== ========= ========
Net earnings (loss) per share:
Basic .............................. $ 0.25 $ (0.39)
======== =========
Diluted ............................ $ 0.24 $ (0.39)
======== =========
Weighted average shares outstanding:
Basic .............................. 43,427,728 6,682,655(L) 50,110,383
========== ========= ===========
Diluted ............................ 45,400,778 4,709,605(L) 50,110,383
========== ========= ===========
</TABLE>
(1) Amounts presented are for twelve months ended May 31, 2000.
See accompanying notes to Unaudited Pro Forma Combined Condensed Financial
Statements.
<PAGE>
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 Fall River Gas,
ProvEnergy, and Valley Resources, collectively "the New England
acquisitions."
(B) Reflects excess cash after application of the net proceeds from the merger
financing of the New England acquisitions. See Note (F).
(C) Reflects the capitalization of estimated costs associated with the bank
borrowings as more specifically described in Note (F) incurred in
connection with the New England acquisitions. These financing costs are
amortized on a straight-line basis over the life of the bank borrowings.
(D) Reflects the elimination of common stockholders' equity of Fall River Gas,
ProvEnergy, and Valley Resources.
(E) Reflects the issuance of Southern Union common stock to Fall River Gas
stockholders. See Note (L).
(F) Reflects bank borrowings at an estimated annual interest rate of 7.50%
based on current market rates. The bank borrowings are utilized: to
finance the cash portion of the purchase of Fall River Gas, ProvEnergy,
and Valley Resources and the settlement of any respective stock options;
and to pay various professional fees and change of control agreements
expected to be incurred in connection with the New England acquisitions.
See Note (H).
Adjustments to the Unaudited Pro Forma Combined Condensed Statements of
Operations
(G) 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, Fall River Gas, ProvEnergy, and
Valley Resources on a straight-line basis over a 40-year period based on
the estimated useful lives of these assets. The pro forma adjustment
reflects only four months of amortization of additional purchase cost
related to the acquisition of PEI, as eight months of actual are included
in Southern Union's historical balances due to the closing of this merger
on November 4, 1999.
(H) Reflects interest expense on bank borrowings for the New England
acquisitions at an estimated annual interest rate of 7.50%, based on
current market rates, and interest expense on the $300 million of
long-term debt at 8.25% issued on November 3, 1999 in connection with the
PEI merger. The bank borrowings and long-term debt are assumed to be
utilized: to finance the cash portion of the purchase of PEI, Fall River
Gas, ProvEnergy and Valley Resources and the settlement of any respective
stock options; to refinance certain debt of PEI, Valley Resources and
Southern Union; 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 and change of control agreements expected to be incurred
in connection with all mergers.
(I) Reflects the elimination of historical interest expense of PEI and Valley
Resources as a result of refinancing certain debt in connection with such
mergers. See Note (H).
(J) Reflects the income tax consequences at the federal statutory rate of the
pro forma adjustments after excluding nondeductible goodwill amortization.
(K) Reflects the elimination of preferred stock dividend requirement due to
the repurchase of all outstanding PEI and ProvEnergy preferred stock prior
to the closing of the mergers for PEI and ProvEnergy.
<PAGE>
(L) Reflects the issuance of 16,713,735 pre-stock dividend shares of Southern
Union stock for the purchase of PEI. Also reflects the estimated issuance
of 1,332,285 shares of Southern Union stock for the purchase of Fall River
Gas, based on an average trading price of $19.60820 for the ten
trading-day period ending on the third trading day before September 28,
2000 and an exchange ratio of 1.19848. Due to the loss position resulting
from the pro forma adjustments, the diluted shares outstanding were
adjusted for 1,973,050 shares of common stock equivalents that had been
included in Southern Union's historical amounts.
(c) Exhibits
2.1 Agreement of Merger between Southern Union Company
and Fall River Gas Company dated as of October 4,
1999. (Filed as Exhibit 2 to Southern Union's Current
Report on Form 8-K filed on October 4, 1999 and
incorporated herein by reference.).
2.2 Agreement and Plan of Merger among Southern Union
Company, GUS Acquisition Corporation and Providence
Energy Corporation dated November 15, 1999. (Filed as
Exhibit 2 to Southern Union's Current Report on Form
8-K filed on November 19, 1999 and incorporated
herein by reference.)
2.3 Agreement and Plan of Merger among Southern Union
Company, SUG Acquisition Corporation and Valley
Resources, Inc. dated November 30, 1999. (Filed as
Exhibit 2 to Southern Union's Current Report on Form
8-K filed on December 6, 1999 and incorporated herein
by reference.)
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Arthur Andersen LLP
23.3 Consent of Grant Thornton, LLP
<PAGE>
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 October 5, 2000 By
Ronald J. Endres
Executive Vice President and Chief
Financial Officer
Date October 5, 2000 By
David J. Kvapil
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
<PAGE>
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 October 5, 2000 By RONALD J. ENDRES
Ronald J. Endres
Executive Vice President and Chief
Financial Officer
Date October 5, 2000 By DAVID J. KVAPIL
David J. Kvapil
Senior Vice President and Corporate Controller
(Principal Accounting Officer)
