<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
MARCH 25, 1996
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Schedule 13E-4/A
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(Amendment No.1)
PENNSYLVANIA ENTERPRISES, INC.
(NAME OF ISSUER AND PERSON FILING STATEMENT)
COMMON STOCK, NO PAR VALUE, STATED VALUE $10.00 PER SHARE
(Title of Class of Securities)
708720107
(CUSIP Number of Class of Securities)
THOMAS J. WARD
SECRETARY
PENNSYLVANIA ENTERPRISES, INC.
WILKES-BARRE CENTER
39 PUBLIC SQUARE
WILKES-BARRE, PENNSYLVANIA 18711
(717) 829-8843
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and
Communications on Behalf of the Person Filing the Statement)
COPY TO:
GARETT J. ALBERT
HUGHES HUBBARD & REED
ONE BATTERY PARK PLAZA
NEW YORK, NEW YORK 10004-1482
(212) 837-6000
MARCH 11, 1996
(Date Tender Offer First Published, Sent Or Given To Security Holders)
Calculation of Filing Fee
-----------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
Transaction Valuation* .. Amount of Filing Fee
$78,000,000.............. $15,600
</TABLE>
* Determined pursuant to Rule 0-11(b)(1). Assumes the purchase of 2,000,000
shares at $39.00 per share.
[X] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
Amount Previously Paid: $15,600
Form or Registration No.: Schedule 13E-4
Filing Party: Pennsylvania Enterprises, Inc.
Date Filed: March 11, 1996
<PAGE>
This Amendment No. 1 amends and supplements the Issuer Tender Offer
Statement on Schedule 13E-4 (the "Statement") dated March 11, 1996, filed by
Pennsylvania Enterprises, Inc. (the "Company") relating to the Company's offer
to purchase up to 2,000,000 shares of its Common Stock, no par value, stated
value $10.00 per share (the "Shares") (including the associated common stock
purchase rights issued pursuant to the Rights Agreement dated as of April 26,
1995, between the Company and Chemical Bank, as Rights Agent), at a price not
greater than $39.00 nor less than $37.00 per Share, net to the seller in cash,
upon the terms and subject to the conditions set forth in the Offer to Purchase,
dated March 11, 1996, and the related Letter of Transmittal, copies of which
were previously filed as Exhibits (a)(1) and (a)(2) to the Statement,
respectively, and incorporated by reference therein. Terms defined in the
Statement and not separately defined herein shall have the meanings specified in
the Statement.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Item 9 is hereby amended by supplementing the following Exhibits:
(a)(2) Form of Letter of Transmittal together with Guidelines for
Certification of Taxpayer Identification Number on Substitute Form
W-9.
(g) Pages 28 through 55 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
Item 9 is hereby further amended by adding the following Exhibit:
(a)(12) Form of Letter to Participants in the Pennsylvania Enterprises, Inc.
Dividend Reinvestment and Stock Purchase Plan, dated March 22, 1996.
1
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
Pennsylvania Enterprises, Inc.
By: /s/ John F. Kell, Jr.
-------------------------------------
Name: John F. Kell, Jr.
Title: Vice President, Financial Services
Dated: March 25, 1996
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ----------- -----------
(a)(2) Form of Letter of Transmittal together with Guidelines for
Certification of Taxpayer Identification Number on Substitute Form
W-9.
(a)(12) Form of Letter to Participants in the Pennsylvania Enterprises, Inc.
Divident Reinvestment and Stock Purchase Plan, dated March 22, 1996.
(g) Pages 28 through 55 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
<PAGE>
LETTER OF TRANSMITTAL
TO ACCOMPANY SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED COMMON STOCK PURCHASE RIGHTS)
OF
PENNSYLVANIA ENTERPRISES, INC.
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED MARCH 11, 1996
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, APRIL 8, 1996, UNLESS THE
OFFER IS EXTENDED.
TO: Chemical Mellon Shareholder Services, L.L.C., Depositary
<TABLE>
<CAPTION>
<S> <C> <C>
By Mail: By Facsimile Transmission: By Hand or Overnight Courier:
Reorganization Department (For Eligible Institutions Only) Reorganization Department
P.O. Box 837 (201) 296-4293 120 Broadway
Midtown Station To Confirm Receipt of Facsimile: 13th Floor
New York, NY 10018 (201) 296-4100 New York, NY 10271
</TABLE>
<TABLE>
<CAPTION>
DESCRIPTION OF SHARES TENDERED
SHARES TENDERED
(ATTACH ADDITIONAL LIST, IF NECESSARY) PRINT NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S)
<S> <C> <C> <C>
TOTAL NUMBER OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES (PLEASE FILL IN EXACTLY AS NAME(S)
NUMBER(S)* CERTIFICATE(S)* TENDERED** APPEAR(S) ON CERTIFICATE(S))
TOTAL SHARES:
<FN>
* Need not be completed by stockholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all Shares represented
by any certificate delivered to the Depositary are being tendered. See
Instruction 4.
</FN>
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
<PAGE>
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used if certificates are to be forwarded
herewith or if delivery of Shares (as defined below) is to be made by book-entry
transfer to the Depositary's account at The Depository Trust Company ("DTC")
or the Philadelphia Depository Trust Company ("PDTC") (hereinafter collectively
referred to as the "Book-Entry Transfer Facilities") pursuant to the procedures
set forth in Section 6 of the Offer to Purchase (as defined below).
Stockholders who cannot deliver their Shares and all other documents required
hereby to the Depositary by the Expiration Date (as defined in the Offer to
Purchase) must tender their Shares pursuant to the guaranteed delivery procedure
set forth in Section 6 of the Offer to Purchase. See Instruction 2. Delivery of
documents to the Company or to a Book-Entry Transfer Facility does not
constitute a valid delivery.
(BOXES BELOW FOR USE BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________________________________________
Check Applicable Box: [ ] DTC [ ] PDTC
Account No. _______________________________________________________________
Transaction Code No. ______________________________________________________
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Tendering Stockholder(s) _______________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution that Guaranteed Delivery ______________________________
If delivery is by book-entry transfer:
Name of Tendering Institution _____________________________________________
Account No. at [ ] DTC [ ] PDTC
Transaction Code No.
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Pennsylvania Enterprises, Inc., a
Pennsylvania corporation (the "Company"), the above-described shares of its
Common Stock, no par value, stated value $10.00 per share (the "Shares")
(including the associated common stock purchase rights (the "Rights) issued
pursuant to the Rights Agreement, dated as of April 26, 1995, between the
Company and Chemical Bank, as the Rights Agent), pursuant to the Company's
offer to purchase up to 2,000,000 Shares at a price per Share hereinafter set
forth, net to the seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, dated March 11, 1996 (the "Offer to
Purchase"), receipt of which is hereby acknowledged, and in this Letter of
Transmittal (which together constitute the "Offer"). Unless the context
otherwise requires, all references to Shares shall include the associated
Rights.
Subject to, and effective upon, acceptance for payment of and payment for the
Shares tendered herewith in accordance with the terms and subject to the
conditions of the Offer (including, if the Offer is extended or amended, the
terms and conditions of any such extension or amendment), the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Company all right,
title and interest in and to all the Shares that are being tendered hereby (and
any and all other Shares or other securities issued or issuable in respect
thereof on or after March 16, 1996 (collectively, "Distributions")) and
constitutes and appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Shares and all
Distributions, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest), to (a) deliver
certificates for such Shares and all Distributions, or transfer ownership of
such Shares and all Distributions on the account books maintained by any of the
Book-Entry Transfer Facilities, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of the
Company, (b) present such Shares and all Distributions for registration and
transfer on the books of the Company and (c) receive all benefits and otherwise
exercise all rights of beneficial ownership of such Shares and all
Distributions, all in accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions and that, when and to the extent the same are
accepted for payment by the Company, the Company will acquire good, marketable
and unencumbered title thereto, free and clear of all liens, restrictions,
charges, encumbrances, conditional sales agreements or other obligations
relating to the sale or transfer thereof, and the same will not be subject to
any adverse claims. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Depositary or the Company to be necessary or
desirable to complete the sale, assignment and transfer of the Shares tendered
hereby and all Distributions.
All authority herein conferred or agreed to be conferred shall not be
affected by, and shall survive the death or incapacity of the undersigned, and
any obligation of the undersigned hereunder shall be binding upon the heirs,
personal representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
The undersigned understands that tenders of Shares pursuant to any one of the
procedures described in Section 3 of the Offer to Purchase and in the
instructions hereto will constitute the undersigned's acceptance of the terms
and conditions of the Offer, including the undersigned's representation and
warranty that (i) the undersigned has a net long position in the Shares being
tendered within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended, and (ii) the tender of such Shares complies
with Rule 14e-4. The Company's acceptance for payment of Shares tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Offer.
The undersigned understands that the Company will determine a single per
Share price (not greater than $39.00 nor less than $37.00 per Share) (the
"Purchase Price") that it will pay for Shares validly tendered and not withdrawn
pursuant to the Offer taking into account the number of Shares so tendered and
the prices specified that will enable it to purchase 2,000,000 Shares (or such
lesser number
3
<PAGE>
of Shares as are validly tendered at prices not greater than $39.00 nor less
than $37.00 per Share) pursuant to the Offer. The undersigned understands that
tenders of Shares pursuant to any one of the procedures described in Section 2
or 3 of the Offer to Purchase and in the instructions hereto will constitute an
agreement between the undersigned and the Company upon the terms and subject to
the conditions of the Offer. The undersigned also understands that unless the
Rights are redeemed or become separately transferable in accordance with their
terms, by tendering Shares the undersigned will also be tendering the associated
Rights and that no separate consideration will be paid for such Rights.
Unless otherwise indicated under "Special Payment Instructions," please issue
the check for the Purchase Price of any Shares purchased, and/or return any
Shares not tendered or not purchased, in the name(s) of the undersigned (and, in
the case of Shares tendered by book-entry transfer, by credit to the account at
the Book-Entry Transfer Facility designated above). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please mail the check for the
Purchase Price of any Shares purchased and/or any certificates for Shares not
tendered or not purchased (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s). In the
event that both "Special Payment Instructions" and "Special Delivery
Instructions" are completed, please issue the check for the Purchase Price of
any Shares purchased and/or return any Shares not tendered or not purchased in
the name(s) of, and mail said check and/or any certificates to, the person(s) so
indicated. The undersigned recognizes that the Company has no obligation,
pursuant to the "Special Payment Instructions," to transfer any Shares from the
name of the registered holder(s) thereof if the Company does not accept for
payment any of the Shares so tendered.
4
<PAGE>
PRICE (IN DOLLARS) PER SHARE
AT WHICH SHARES ARE BEING TENDERED
(SEE INSTRUCTION 5)
CHECK ONLY ONE BOX. IF MORE THAN ONE BOX IS CHECKED, OR
IF NO BOX IS CHECKED, THERE IS NO VALID TENDER OF SHARES.
SHARES TENDERED AT PRICE DETERMINED BY DUTCH AUCTION
[ ] The undersigned wants to maximize the chance of having the Company
purchase all the Shares the undersigned is tendering (subject to the
possibility of proration). Accordingly, by checking this one box INSTEAD OF
ONE OF THE PRICE BOXES BELOW, the undersigned hereby tenders Shares and is
willing to accept the Purchase Price resulting from the Dutch auction tender
process. This action could result in receiving a price per Share as low as
$37.00 or as high as $39.00.
______________________________ OR ______________________________
SHARES TENDERED AT PRICE DETERMINED BY STOCKHOLDER
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[ ] $37.000 [ ] $37.500 [ ] $38.000 [ ] $38.500
[ ] $37.125 [ ] $37.625 [ ] $38.125 [ ] $38.625
[ ] $37.250 [ ] $37.750 [ ] $38.250 [ ] $38.750
[ ] $37.375 [ ] $37.875 [ ] $38.375 [ ] $38.875
[ ] $39.000
</TABLE>
ODD LOTS
(SEE INSTRUCTION 9)
This section is to be completed ONLY if shares are being tendered by or on
behalf of a person owning beneficially an aggregate of fewer than 100 Shares as
of the close of business on March 7, 1996, or, in the case of Shares allocated
to a Savings Plan account, as of the close of business on January 1, 1996.
The undersigned either (check one box):
[ ] was the beneficial owner of an aggregate of fewer than 100 Shares
(including Shares held in the Dividend Reinvestment Plan and the Savings
Plan (as such terms are defined in the Offer to Purchase)) as of the close
of business on March 7, 1996, or, in the case of Shares allocated to a
Savings Plan account, as of the close of business on January 1, 1996, all of
which are being tendered, or
[ ] is a broker, dealer, commercial bank, trust company or other nominee that
(i) is tendering, for the beneficial owners thereof, Shares with respect to
which it is the record owner, and (ii) believes, based upon representations
made to it by each such beneficial owner, that such beneficial owner owned
beneficially an aggregate of fewer than 100 Shares (including Shares held in
the Dividend Reinvestment Plan and the Savings Plan) as of the close of
business on March 7, 1996, or, in the case of Shares allocated to a Savings
Plan account, as of the close of business on January 1, 1996, and is
tendering all of such Shares.
5
<PAGE>
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 6, 7 AND 8)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or certificates for Shares not tendered or not purchased are to be issued in
the name of someone other than the undersigned.
Issue [ ] check and/or [ ] certificate(s) to:
Name ___________________________________________________________
________________________________________________________________
(Please Print)
Address _____________________________________________________________
(Include Zip Code)
________________________________________________________________
(Taxpayer Identification or Social Security No.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 6, 7 AND 8)
To be completed ONLY if the check for the Purchase Price of Shares purchased
and/or the certificates for Shares not tendered or not purchased are to be
mailed to someone other than the undersigned or to the undersigned at an address
other than that shown below the undersigned's signature(s).
Mail [ ] check and/or [ ] certificate(s) to:
Name ________________________________________________________________
_____________________________________________________________________
(Please Print)
Address _____________________________________________________________
(Include Zip Code)
CONDITIONAL TENDER
A tendering stockholder may condition his or her tender of Shares upon the
purchase by the Company of a specified minimum number of the Shares tendered
hereby, all as described in the Offer to Purchase, particularly in Section 6
thereof. Unless at least such minimum number of Shares is purchased by the
Company pursuant to the terms of the Offer, none of the Shares tendered hereby
will be purchased. It is the tendering stockholder's responsibility to
calculate such minimum number of Shares, and each stockholder is urged to
consult his or her own tax advisor. Unless this box has been completed and a
minimum specified, the tender will be deemed unconditional.
Minimum number of Shares that must be purchased, if any are purchased:
_____________ Shares
6
<PAGE>
SOLICITED TENDERS
(SEE INSTRUCTION 12)
The Company will pay to any Soliciting Dealer, as defined in Instruction 12,
a solicitation fee of $0.50 per Share for each Share tendered and purchased
pursuant to the Offer.
The undersigned represents that the Soliciting Dealer which solicited and
obtained this tender is:
Name of Firm:__________________________________________________________________-
(Please Print)
Name of Individual Broker or Financial Consultant:______________________________
Identification Number (if known):_______________________________________________
Address:________________________________________________________________________
(Include Zip Code)
The following to be completed ONLY if customer's Shares held in nominee
name are tendered.
Name of Beneficial Owner Number of Shares Tendered
(Attach additional list if necessary)
_______________________ ___________________________
_______________________ ___________________________
_______________________ ___________________________
The acceptance of compensation by such Soliciting Dealer will constitute a
representation by it that: (i) it has complied with the applicable requirements
of the Securities Exchange Act of 1934, as amended, and the applicable rules and
regulations thereunder, in connection with such solicitation; (ii) it is
entitled to such compensation for such solicitation under the terms and
conditions of the Offer to Purchase; (iii) in soliciting tenders of Shares, it
has used no soliciting materials other than those furnished by the Company; and
(iv) if it is a foreign broker or dealer not eligible for membership in the
National Association of Securities Dealers, Inc. (the "NASD"), it has agreed to
conform to the NASD's Rules of Fair Practice in making solicitations.
The payment of compensation to any Soliciting Dealer is dependent on such
Soliciting Dealer's returning a Notice of Solicited Tenders to the Depositary.
7
<PAGE>
SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
________________________________________________________________________________
Signature(s) of Owner(s)
________________________________________________________________________________
Dated: _________________, 1996
Name(s) ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No. ____________________________________________________
Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please set forth full title and see Instruction 5.
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Name of Firm ___________________________________________________________________
Authorized Signature ___________________________________________________________
Dated: ____________________, 1996
8
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm that is a
member of a registered national securities exchange or the National Association
of Securities Dealers, Inc., or by a commercial bank or trust company having an
office or correspondent in the United States which is a participant in an
approved Signature Guarantee Medallion Program (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed (a) if this
Letter of Transmittal is signed by the registered holder(s) of the Shares (which
term, for purposes of this document, shall include any participant in one of the
Book-Entry Transfer Facilities whose name appears on a security position listing
as the owner of Shares) tendered herewith and such holder(s) have not completed
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on this Letter of Transmittal or (b) if such Shares are
tendered for the account of an Eligible Institution. See Instruction 6.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES. This Letter of Transmittal
is to be used either if certificates are to be forwarded herewith or if delivery
of Shares is to be made by book-entry transfer pursuant to the procedures set
forth in Section 3 of the Offer to Purchase. Certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by this Letter of Transmittal, must be received by the Depositary at
one of its addresses set forth on the front page of this Letter of Transmittal
on or prior to the Expiration Date (as defined in the Offer to Purchase).
Stockholders who cannot deliver their Shares and all other required documents to
the Depositary on or prior to the Expiration Date must tender their Shares
pursuant to the guaranteed delivery procedure set forth in Section 3 of the
Offer to Purchase. Pursuant to such procedure: (a) such tender must be made by
or through an Eligible Institution, (b) a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form provided by the Company
(with any required signature guarantees) must be received by the Depositary on
or prior to the Expiration Date and (c) the certificates for all physically
delivered Shares, or a confirmation of a book-entry transfer into the
Depositary's account at one of the Book-Entry Transfer Facilities of all
Shares delivered electronically, as well as a properly completed and duly
executed Letter of Transmittal (or photocopy thereof) and any other documents
required by this Letter of Transmittal must be received by the Depositary within
three New York Stock Exchange, Inc. trading days after the date of execution of
such Notice of Guaranteed Delivery, all as provided in Section 3 of the Offer to
Purchase.
THE METHOD OF DELIVERY OF SHARES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
OPTION AND RISK OF THE TENDERING STOCKHOLDER. IF CERTIFICATES FOR SHARES ARE
SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED,
IS RECOMMENDED.
Except as specifically permitted by Section 6 of the Offer to Purchase, no
alternative or contingent tenders will be accepted. Fractional Shares will be
purchased, unless proration of tendered Shares is required (in which case
fractional Shares held by participants in the Dividend Reinvestment Plan and the
Savings Plan (as such terms are defined in the Offer to Purchase) will be
purchased). See Section 1 of the Offer to Purchase. By executing this Letter of
Transmittal (or a photocopy thereof), the tendering stockholder waives any right
to receive any notice of the acceptance for payment of the Shares.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the number of Shares should be listed on a separate
schedule attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO STOCKHOLDERS WHO TENDER BY BOOK-ENTRY
TRANSFER). If fewer than all the Shares represented by any certificate delivered
to the Depositary are to be tendered, fill in the number of Shares that are to
be tendered in the box entitled "Number of Shares Tendered." In such case, a new
certificate for the remainder of the Shares represented by the old certificate
will be sent to the person(s) signing this Letter of Transmittal, unless
otherwise provided in the "Special Payment Instructions" or "Special Delivery
Instructions" boxes on this Letter of Transmittal, as
9
<PAGE>
promptly as practicable following the expiration or termination of the Offer.
All Shares represented by certificates delivered to the Depositary will be
deemed to have been tendered unless otherwise indicated.
5. INDICATION OF PRICE AT WHICH SHARES ARE BEING TENDERED. For Shares to be
validly tendered, the stockholder must check the box indicating the price per
Share at which he or she is tendering Shares under "Price (In Dollars) Per Share
at Which Shares Are Being Tendered" on this Letter of Transmittal. Only one box
may be checked. If more than one box is checked or if no box is checked, there
is no valid tender of Shares. A stockholder wishing to tender portions of his or
her Share holdings at different prices must complete a separate Letter of
Transmittal for each price at which he or she wishes to tender each such portion
of his or her Shares. The same Shares cannot be tendered (unless previously
validly withdrawn as provided in Section 4 of the Offer to Purchase) at more
than one price. Stockholders wishing to maximize the possibility that their
Shares will be purchased at the relevant Purchase Price may check the box on the
Letter of Transmittal marked "Shares Tendered at Purchase Price Determined by
Dutch Auction." Checking this box may result in a purchase price of the Shares
so tendered at the minimum price of $37.00.
6. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
hereby, the signature(s) must correspond with the name(s) as written on the face
of the certificates without alteration, enlargement or any change whatsoever.
If any of the Shares hereby are held of record by two or more persons, all
such persons must sign this Letter of Transmittal.
If any of the Shares tendered hereby are registered in different names on
different certificates, it will be necessary to complete, sign and submit as
many separate Letters of Transmittal as there are different registrations of
certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares tendered hereby, no endorsements of certificates or separate stock powers
are required unless payment of the Purchase Price is to be made to, or Shares
not tendered or not purchased are to be registered in the name of, any person
other than the registered holder(s). Signatures on any such certificates or
stock powers must be guaranteed by an Eligible Institution.
See Instruction 1.
If this Letter of Transmittal is signed by a person other than the registered
holder(s) of the Shares tendered hereby, certificates must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name(s) of the registered holder(s) appear(s) on the certificates for such
Shares. Signature(s) on any such certificates or stock powers must be guaranteed
by an Eligible Institution. See Instruction 1.
If this Letter of Transmittal or any certificate or stock power is signed by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
the Company of the authority of such person so to act must be submitted.
7. STOCK TRANSFER TAXES. The Company will pay or cause to be paid any stock
transfer taxes with respect to the sale and transfer of any Shares to it or its
order pursuant to the Offer. If, however, payment of the Purchase Price is to be
made to, or Shares not tendered or not purchased are to be registered in the
name of, any person other than the registered holder(s), or if tendered Shares
are registered in the name of any person other than the person(s) signing this
Letter of Transmittal, the amount of any stock transfer taxes (whether imposed
on the registered holder(s), such other person or otherwise) payable on account
of the transfer to such person will be deducted from the Purchase Price unless
satisfactory evidence of the payment of such taxes, or exemption therefrom, is
submitted. See Section 5 of the Offer to Purchase.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If the check for the Purchase
Price of any Shares purchased is to be issued in the name of, and/or any Shares
not tendered or not purchased are to be returned to, a person other than the
person(s) signing this Letter of Transmittal or if the check and/or
10
<PAGE>
any certificates for Shares not tendered or not purchased are to be mailed to
someone other than the person(s) signing this Letter of Transmittal or to an
address other than that shown below the signature of the person(s) signing this
Letter of Transmittal, then the boxes captioned "Special Payment Instructions"
and/or "Special Delivery Instructions" on this Letter of Transmittal should be
completed. Stockholders tendering Shares by book-entry transfer will have any
Shares not accepted for payment returned by crediting the account maintained by
such stockholder at the Book-Entry Transfer Facility from which such transfer
was made.
9. ODD LOTS. As described in the Offer to Purchase, if more than 2,000,000
Shares have been validly tendered at or below the Purchase Price and not
withdrawn on or prior to the Expiration Date, the Company will purchase first
all Shares (excluding Shares held in a Savings Plan account) validly tendered at
or below the Purchase Price and not withdrawn on or prior to the Expiration Date
by any stockholder (an "Odd Lot Owner") who owned beneficially an aggregate of
fewer than 100 Shares (including any Shares held in the Dividend Reinvestment
Plan and the Savings Plan and fractional shares) as of the close of business on
March 7, 1996, or, in the case of Shares allocated to a Savings Plan account, as
of the close of business on January 1, 1996, and who validly tenders all of such
Shares (partial and conditional tenders will not qualify for this preference)
and completes the box captioned "Odd Lots" on the Letter of Transmittal and, if
applicable, the Notice of Guaranteed Delivery.
10. SUBSTITUTE FORM W-9 AND FORM W-8. The tendering stockholder is required
to provide the Depositary with either a correct Taxpayer Identification Number
("TIN") on Substitute Form W-9, which is provided under "Important Tax
Information" below, or in the case of certain foreign stockholders, a properly
completed Form W-8. Failure to provide the information on either Substitute Form
W-9 or Form W-8 may subject the tendering stockholder to 31% federal income tax
backup withholding on the payment of the Purchase Price. The box in Part 2 of
Substitute Form W-9 may be checked if the tendering stockholder has not been
issued a TIN and has applied for a number or intends to apply for a number in
the near future. If the box in Part 2 is checked and the Depositary is not
provided with a TIN by the time of payment, the Depositary will withhold 31% on
all payments of the Purchase Price thereafter until a TIN is provided to the
Depositary.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or requests
for assistance may be directed to the Information Agent at the telephone number
and address listed below. Requests for additional copies of the Offer to
Purchase, this Letter of Transmittal or other tender offer materials may be
directed to the Information Agent and such copies will be furnished promptly at
the Company's expense. Stockholders may also contact their local broker,
dealer, commercial bank or trust company for assistance concerning the Offer.
12. SOLICITED TENDERS. The Company will pay a solicitation fee of $0.50 per
Share for any Shares tendered and accepted for payment and paid for pursuant to
the Offer, covered by the Letter of Transmittal which designates, in the box
captioned "Solicited Tenders," as having solicited and obtained the tender, the
name of (i) any broker or dealer in securities, including the Dealer Manager in
its capacity as a dealer or broker, which is a member of any national securities
exchange or of the National Association of Securities Dealers, Inc. (the
"NASD"), (ii) any foreign broker or dealer not eligible for membership in the
NASD which agrees to conform to the NASD's Rules of Fair Practice in
soliciting tenders outside the United States to the same extent as though it
were an NASD member, or (iii) any bank or trust company (each of which is
referred to herein as a "Soliciting Dealer"). No such fee shall be payable to a
Soliciting Dealer with respect to the tender of Shares by a holder unless the
Letter of Transmittal accompanying such tender designates such Soliciting
Dealer. No such fee shall be payable to a Soliciting Dealer if such Soliciting
Dealer is required for any reason to transfer the amount of such fee to a
depositing holder (other than itself). No such fee shall be payable to a
Soliciting Dealer with respect to Shares tendered for such Soliciting Dealer's
own account. No broker, dealer, bank, trust company or fiduciary shall be deemed
to be the agent of the Company, the Depositary, the Information Agent or the
Dealer Manager for purposes of the Offer.
13. IRREGULARITIES. All questions as to the Purchase Price, the form of
documents and the validity, eligibility (including time of receipt) and
acceptance of any tender of Shares will be determined by the Company, in its
sole discretion, and its determination shall be final and binding. The Company
reserves
11
<PAGE>
the absolute right to reject any or all tenders of Shares that it determines are
not in proper form or the acceptance for payment of or payment for Shares that
may, in the opinion of the Company's counsel, be unlawful. The Company also
reserves the absolute right to waive any of the conditions to the Offer or any
defect or irregularity in any tender of Shares and the Company's
interpretation of the terms and conditions of the Offer (including these
instructions) shall be final and binding. Unless waived, any defects or
irregularities in connection with tenders must be cured within such time as the
Company shall determine. None of the Company, the Dealer Manager, the
Depositary, the Information Agent or any other person shall be under any duty to
give notice of any defect or irregularity in tenders, nor shall any of them
incur any liability for failure to give any such notice. Tenders will not be
deemed to have been made until all defects and irregularities have been cured or
waived.
14. DIVIDEND REINVESTMENT PLAN. If a tendering stockholder desires to have
tendered pursuant to the Offer Shares which such stockholder has accumulated
through March 7, 1996, under the Dividend Reinvestment Plan, the election form
included in the "Memorandum to Participants in the Dividend Reinvestment and
Stock Purchase Plan" should be completed in lieu of this Letter of Transmittal
with respect to such Shares. A participant in the Dividend Reinvestment Plan may
complete only one such election form. If a participant submits more than one
election form, the participant will be deemed to have elected to tender all
Shares which such participant has accumulated under the Dividend Reinvestment
Plan through March 7, 1996 at the lowest of the prices specified in such
election forms.
If a stockholder authorizes a tender of his or her Shares held in the
Dividend Reinvestment Plan, all such Shares held in such stockholder's
Dividend Reinvestment Plan account, including fractional Shares, will be
tendered, unless otherwise specified in the election form.
If a participant tenders all of his or her Shares held in a Dividend
Reinvestment Plan account and all such Shares are purchased by the Company
pursuant to the Offer, such tender will be deemed to be authorization and
written notice to Chemical Bank, which administers the Dividend Reinvestment
Plan, of termination of such stockholder's participation in the Dividend
Reinvestment Plan, subject to a stockholder's right to recommence participation
in accordance with the terms of the Dividend Reinvestment Plan.
In the event that the election form included in the "Memorandum to
Participants in the Dividend Reinvestment and Stock Purchase Plan" is not
completed, no Shares held in the tendering stockholder's Dividend Reinvestment
Plan account will be tendered.
SAVINGS PLAN. If a tendering stockholder desires to have tendered pursuant to
the Offer Shares which such stockholder has credited to his or her account as of
January 1, 1996, under the Savings Plan, the election form included in the
"Memorandum to Participants in the Savings Plan" should be completed in lieu of
this Letter of Transmittal with respect to such Shares. A participant in the
Savings Plan may complete only one such election form. If a participant submits
more than one election form, the participant will be deemed to have elected to
tender all Shares which have been credited to the account of such participant
under the Savings Plan as of January 1, 1996, at the lowest of the prices
specified in such election forms.
If a stockholder authorizes a tender of his or her Shares held in the Savings
Plan, all such Shares allocated to such stockholder's Savings Plan account(s),
including fractional Shares, will be tendered, unless otherwise specified in the
election form.
In the event that the election form included in the "Memorandum to
Participants in the Savings Plan" is not completed, no Shares allocated to the
tendering stockholder's Savings Plan account(s) will be tendered.
IMPORTANT TAX INFORMATION
Under federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with
either such stockholder's correct TIN on Substitute Form W-9 below or in the
case of certain foreign stockholders, a properly completed Form W-8. If such
stockholder is an individual, the TIN is his or her social security number. For
businesses and other entities, the number is the employer identification number.
If the Depositary is not provided with the
12
<PAGE>
correct TIN or properly completed Form W-8, the stockholder may be subject to a
$50 penalty imposed by the Internal Revenue Service. In addition, payments that
are made to such stockholder with respect to Shares purchased pursuant to the
Offer may be subject to backup withholding. The Form W-8 can be obtained from
the Depositary. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
If federal income tax backup withholding applies, the Depositary is required
to withhold 31% of any payments made to the stockholder. Backup withholding is
not an additional tax. Rather, the federal income tax liability of persons
subject to federal income tax backup withholding will be reduced by the amount
of the tax withheld. If withholding results in an overpayment of taxes, a refund
may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9 AND FORM W-8
To avoid backup withholding on payments that are made to a stockholder with
respect to Shares purchased pursuant to the Offer, the stockholder is required
to notify the Depositary of his or her correct TIN by completing the Substitute
Form W-9 attached hereto certifying that the TIN provided on Substitute Form W-9
is correct and that (1) the stockholder has not been notified by the Internal
Revenue Service that he or she is subject to federal income tax backup
withholding as a result of failure to report all interest or dividends or (2)
the Internal Revenue Service has notified the stockholder that he or she is no
longer subject to federal income tax backup withholding. Foreign stockholders
must submit a properly completed Form W-8 in order to avoid the applicable
backup withholding; provided, however, that backup withholding will not apply to
foreign stockholders subject to 30% (or lower treaty rate) withholding on gross
payments received pursuant to the Offer.
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security number
or employer identification number of the registered owner of the Shares. If the
Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional guidance on which number to report.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A PHOTOCOPY THEREOF) TOGETHER WITH
CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED
DOCUMENTS MUST BE RECEIVED BY THE DEPOSITARY, OR THE NOTICE OF GUARANTEED
DELIVERY MUST BE RECEIVED BY THE DEPOSITARY, ON OR PRIOR TO THE EXPIRATION DATE
(AS DEFINED IN THE OFFER TO PURCHASE).
13
<PAGE>
PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES, L.L.C.
SUBSTITUTE
FORM W-9
Department of the Treasury
Internal Revenue Service
Payer's Request for Taxpayer
Identification Number (TIN) and
Certification
________________________________________________________________________________
Part 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW.
- --------------------------------------------------------------------------------
NAME
(Please Print)
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
- --------------------------------------------------------------------------------
________________________________________________________________________________
TIN ________________________
Social Security Number or Employer
Identification Number
Part 2
AWAITING
TIN [ ]
________________________________________________________________________________
Part 3--CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT (1) the
number shown on this form is my correct taxpayer identification number (or a TIN
has not been issued to me but I have mailed or delivered an application to
receive a TIN or intend to do so in the near future), (2) I am not subject to
backup withholding either because I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a result
of a failure to report all interest or dividends or the IRS has notified me that
I am no longer subject to backup withholding and (3) all other information
provided on this form is true, correct and complete.
SIGNATURE ______________________________________ DATE__________________________
You must cross out item (2) above if you have been notified by the IRS that your
are currently subject to backup withholding because of underreporting interest
or dividends on your tax return.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE
THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART 2 OF THE
SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me and either (1) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or (2)
I intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number by the time of payment, 31%
of all payments of the Purchase Price made to me thereafter will be withheld
until I provide a number.
Signature ________________________________________ Date: ________________, 1996
14
<PAGE>
The Information Agent:
D.F. KING & CO., INC.
77 WATER STREET
NEW YORK, NY 10005
(800) 714-3313
The Dealer Manager:
LEGG MASON WOOD WALKER
INCORPORATED
7 EAST REDWOOD STREET, 6TH FLOOR
BALTIMORE, MD 21202
(410) 528-2231
15
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER
ON SUBSTITUTE FORM W-9
SECTION REFERENCES ARE TO THE INTERNAL REVENUE CODE.
Purpose of Form. -- A person who is required to file an information
return with the IRS must obtain your correct Taxpayer Identification Number
("TIN") to report income paid to you, real estate transactions, mortgage
interest you paid, the acquisition or abandonment of secured property, or
contributions you made to an IRA. Use Form W-9 to furnish your correct TIN to
the requester (the person asking you to furnish your TIN) and, when applicable,
(1) to certify that the TIN you are furnishing is correct (or that you are
waiting for a number to be issued), (2) to certify that you are not subject to
backup withholding, and (3) to claim exemption from backup withholding if you
are an exempt payee. Furnishing your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to backup
withholding.
Note: If a requester gives you a form other than a W-9 to request your
TIN, you must use the requester|Als form.
How to Obtain a TIN. -- If you do not have a TIN, apply for one
immediately. To apply, get Form SS-5, Application for a Social Security Card
(for individuals), from your local office of the Social Security Administration,
or Form SS-4, Application for Employer Identification Number (for businesses and
all other entities), from your local IRS office.
To complete Form W-9 if you do not have a TIN, write "Applied for" in
the space for the TIN in Part I (or check box 2 of Substitute Form W-9), sign
and date the form, and give it to the requester. Generally, you must obtain a
TIN and furnish it to the requester by the time of payment. If the requester
does not receive your TIN by the time of payment, backup withholding, if
applicable, will begin and continue until you furnish your TIN to the requester.
Note: Writing "Applied for" (or checking box 2 of the Substitute Form
W-9) on the form means that you have already applied for a TIN OR that you
intend to apply for one in the near future.
As soon as you receive your TIN, complete another Form W-9, include
your TIN, sign and date the form, and give it to the requester.
What is Backup Withholding? -- Persons making certain payments to you
are required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
1. You do not furnish your TIN to the requester, or
2. The IRS notifies the requester that you furnished an incorrect TIN,
or
3. You are notified by the IRS that you are subject to backup
withholding because you failed to report all your interest and dividends on your
tax return (for reportable interest and dividends only), or
4. You do not certify to the requester that you are not subject to
backup withholding under 3 above (for reportable interest and dividend accounts
opened after 1983 only), or
5. You do not certify your TIN. This applies only to reportable
interest, dividend, broker, or barter exchange accounts opened after 1983, or
broker accounts considered inactive in 1983.
Certain payees and payments are exempt from backup withholding and
information reporting. See Payees and Payments Exempt From Backup Withholding,
below, if you are an exempt payee.
1
<PAGE>
Payees and Payments Exempt From Backup Withholding. -- The following is
a list of payees exempt from backup withholding and for which no information
reporting is required. For interest and dividends, all listed payees are exempt
except item (9). For broker transactions, payees listed in (1) through (13) and
a person registered under the Investment Advisers Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in items (1) through (7), except a corporation that provides medical
and health care services or bills and collects payments for such services is not
exempt from backup withholding or information reporting. Only payees described
in items (2) through (6) are exempt from backup withholding for barter exchange
transactions, patronage dividends, and payments by certain fishing boat
operators.
(1) A corporation. (2) An organization exempt from tax under section
501(a), or an IRA, or a custodial account under section 403(b)(7). (3) The
United States or any of its agencies or instrumentalities. (4) A state, the
District of Columbia, a possession of the United States, or any of their
political subdivisions or instrumentalities. (5) A foreign government or any of
its political subdivisions, agencies, or instrumentalities. (6) An international
organization or any of its agencies or instrumentalities. (7) A foreign central
bank of issue. (8) A dealer in securities or commodities required to register in
the United States or a possession of the United States. (9) A futures commission
merchant registered with the Commodity Futures Trading Commission. (10) A real
estate investment trust. (11) An entity registered at all times during the tax
year under the Investment Company Act of 1940. (12) A common trust fund operated
by a bank under section 584(a). (13) A financial institution. (14) A middleman
known in the investment community as a nominee or listed in the most recent
publication of the American Society of Corporate Secretaries, Inc., Nominee
List. (15) A trust exempt from tax under section 664 or described in section
4947.
Payments of dividends and patronage dividends generally not subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the
United States and that have at least one nonresident partner.
o Payments of patronage dividends not paid in money.
o Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding
include the following:
o Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600
or more and is paid in the course of the payer's trade or business and you have
not provided your correct TIN to the payer.
o Payments of tax-exempt interest (including exempt-interest
dividends under section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Mortgage interest paid by you.
Payments that are not subject to information reporting are also not
subject to backup withholding. For details, see sections 6041, 6041(A)(a), 6042,
6044, 6045, 6049, 6050A, and 6050N, and their regulations.
PENALTIES
Failure to Furnish TIN. -- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
2
<PAGE>
Civil Penalty for False Information With Respect to Withholding. -- If
you make a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
Criminal Penalty for Falsifying Information. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
Misuse of TINs. -- If the requester discloses or uses TINs in violation
of Federal law, the requester may be subject to civil and criminal penalties.
SPECIFIC INSTRUCTIONS
Name. -- If you are an individual, you must generally provide the name
shown on your social security card. However, if you have changed your last name,
for instance, due to marriage, without informing the Social Security
Administration of the name change, please enter your first name, the last name
shown on your social security card, and your new last name. If you are a sole
proprietor, you must furnish your individual name and either your Social
Security Number ("SSN") or Employer Identification Number ("EIN").
SIGNING THE CERTIFICATION.
1. Interest, Dividend, and Barter Exchange Accounts Opened Before 1984
and Broker Accounts Considered Active During 1983. You are required to furnish
your correct TIN, but you are not required to sign the certification.
2. Interest, Dividend, Broker and Barter Exchange Accounts Opened After
1983 and Broker Accounts Considered Inactive During 1983. You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out item 2 in the certification before signing the form.
3. Real Estate Transactions. You must sign the certification. You may
cross out item 2 of the certification.
4. Other Payments. You are required to furnish your correct TIN, but
you are not required to sign the certification unless you have been notified of
an incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
5. Mortgage Interest Paid by You, Acquisition or Abandonment of Secured
Property, or IRA Contributions. You are required to furnish your correct TIN,
but you are not required to sign the certification.
6. Exempt Payees and Payments. If you are exempt from backup
withholding, you should complete this form to avoid possible erroneous backup
withholding. Enter your correct TIN in Part I, write "EXEMPT" on the form and
sign and date the form. If you are a nonresident alien or foreign entity not
subject to backup withholding, give the requester a complete Form W-8,
Certificate of Foreign Status.
7. TIN "Applied for." Follow the instructions under How To Obtain a
TIN, on page 1, and sign and date the form.
Signature. -- For a joint account, only the person whose TIN is shown
in Part I should sign.
Privacy Act Notice. -- Section 6109 requires you to furnish your
correct TIN to persons who must file information returns with the IRS to report
interest, dividends, and certain other income paid to you, mortgage interest you
paid, the acquisition or abandonment of secured property, or contributions you
made to an IRA. The IRS uses the numbers for identification purposes and to help
verify the accuracy of your tax return. You must provide your TIN whether or not
you are required to file a tax return. Payers must generally withhold 31% of
taxable interest, dividend, and certain other payments to a payee who does not
furnish a TIN to a payer. Certain penalties may also apply.
3
<PAGE>
What Name and Number to Give the Requester
<TABLE>
<CAPTION>
For this type of account: Give name and SSN of:
<S> <C> <C>
1 Individual The individual
2 Two or more individuals (joint account) The actual owner of the account or, if combined
3 Custodian account of a minor (Uniform Gift to funds, the first individual on the account(1)
Minors Act) The minor(2)
4 a. The usual revocable savings trust (grantor is The grantor-trustee(1)
also trustee)
b. So-called trust account that is not a legal or The actual owner(1)
valid trust under state law
5 Sole proprietorship The owner(3)
For this type of account: Give name and EIN of:
6 Sole proprietorship The owner(3)
7 A valid trust, estate, or pension trust The legal entity(4)
8 Corporate The corporation
9 Association, club, religious, charitable, educational, or The organization
other tax-exempt organization
10 Partnership The partnership
11 A broker or registered nominee The broker or nominee
12 Account with the Department of Agriculture The public entity
in the name of a public entity (such as a state
or local government, school district or prison)
that receives agricultural program payments
<FN>
_____________
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor|Als name and furnish the minor|Als SSN.
(3) Show your individual name. You may use your SSN or EIN.
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the TIN of the personal representative or trustee unless the
legal entity itself is not designated in the account title.)
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
</FN>
</TABLE>
4
<PAGE>
PEI PENNSYLVANIA
ENTERPRISES
INC.
WILKES-BARRE CENTER
39 PUBLIC SQUARE, WILKES-BARRE, PENNSYLVANIA 18711-0601
March 22, 1996
Dear Participant in the Pennsylvania Enterprises, Inc. Dividend Reinvestment and
Stock Purchase Plan:
You recently received from Pennsylvania Enterprises, Inc. an Offer to
Purchase up to 2,000,000 shares of its common stock (representing approximately
34.5% of the currently outstanding shares), at a price not greater than $39.00
nor less than $37.00 per share, dated March 11, 1996. Accompanying the Offer to
Purchase were several transmittal documents, including an Election Form to be
used to tender shares held in the Pennsylvania Enterprises, Inc. Dividend
Reinvestment and Stock Purchase Plan (the "Dividend Reinvestment Plan"). The
label affixed to the Election Form, however, mistakenly listed your total share
ownership instead of only specifying the number of shares held by you in the
Dividend Reinvestment Plan. Additionally, a separate Letter of Transmittal
should have accompanied the Offer to Purchase, which must be used to tender
shares held by you in your own name, should you elect to tender such shares.
Accordingly, a new Election Form stating only the number of shares held
by you in the Dividend Reinvestment Plan is enclosed. To properly tender shares
held in the Dividend Reinvestment Plan, you must complete and return the
enclosed Election Form in accordance with the instructions in the Election Form
and the Memorandum to Participants in the Pennsylvania Enterprises, Inc.
Dividend Reinvestment and Stock Purchase Plan which was mailed to you on March
11, 1996. Also enclosed is a Letter of Transmittal stating the number of shares
held by you in your own name which must be completed in accordance with the
instructions in the Letter of Transmittal and returned in addition to the
Election Form, should you elect to tender shares held both in the Dividend
Reinvestment Plan and in your own name. Both forms should be returned together
to Chemical Mellon Shareholder Services, L.L.C. in the enclosed envelope.
If you do not wish to participate in the offer, you do not need to take
any action.
Any questions, requests for assistance or requests for additional
copies of the tender offer materials may be directed to D.F. King & Co., Inc.
(the Information Agent), at the address and telephone number set forth on the
back cover of the enclosed Letter of Transmittal.
Sincerely,
/s/Dean T. Casaday
------------------
President and Chief Executive Officer
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennsylvania Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets and consolidated
statements of capitalization of Pennsylvania Enterprises, Inc. (a Pennsylvania
corporation) and subsidiaries (the "Company") as of December 31, 1995 and 1994,
and the related consolidated statements of income, common shareholders'
investment, and cash flows for each of the three years in the period ended
December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Pennsylvania
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Supplemental Schedule II,
Valuation and Qualifying Accounts for the three-year period ended December 31,
1995 (see index of financial statements) is presented for purposes of complying
with the Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subject to the
auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
February 23, 1996
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES $ 152,756 $ 167,992 $ 153,325
Cost of gas 84,372 98,653 86,557
OPERATING MARGIN 68,384 69,339 66,768
OTHER OPERATING EXPENSES:
Operation 22,438 22,652 21,797
Maintenance 4,967 4,436 3,695
Depreciation 6,971 6,667 6,388
Income taxes 3,556 4,290 4,935
Taxes other than income taxes 9,918 10,807 10,055
Total other operating expenses 47,850 48,852 46,870
OPERATING INCOME 20,534 20,487 19,898
OTHER INCOME (DEDUCTIONS), NET (Note 4) 763 258 (472)
INCOME BEFORE INTEREST CHARGES 21,297 20,745 19,426
INTEREST CHARGES:
Interest on long-term debt 13,663 12,591 11,636
Other interest 1,844 1,223 1,299
Allowance for borrowed funds used
during construction (94) (21) (47)
Total interest charges 15,413 13,793 12,888
INCOME FROM CONTINUING OPERATIONS 5,884 6,952 6,538
DISCONTINUED OPERATIONS (Note 2):
Income from discontinued operations 2,127 10,504 7,909
Estimated loss on disposal of discontinued
operations, net of anticipated income
during the phase-out period of $7,409,000
(net of related income taxes of $4,800,000) (5,961) - -
Income (loss) with respect to discontinued
operations (3,834) 10,504 7,909
INCOME BEFORE SUBSIDIARY'S
PREFERRED STOCK DIVIDENDS 2,050 17,456 14,447
SUBSIDIARY'S PREFERRED STOCK DIVIDENDS 2,763 4,639 6,462
NET INCOME (LOSS) $ (713) $ 12,817 $ 7,985
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ .55 $ .43 $ .02
Discontinued operations (.67) 1.92 1.80
Net income (loss) before premium on
redemption of subsidiary's preferred stock (.12) 2.35 1.82
Premium on redemption of subsidiary's
preferred stock - (.18) -
Earnings (loss) per share of common stock $ (.12) $ 2.17 $ 1.82
Weighted average number of shares outstanding 5,729,436 5,456,568 4,394,953
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995* 1994*
(Thousands of Dollars)
<S> <C> <C>
ASSETS
UTILITY PLANT:
At original cost, less acquisition
adjustments of $386,000 $295,895 $284,080
Accumulated depreciation (76,882) (74,408)
219,013 209,672
OTHER PROPERTY AND INVESTMENTS 7,142 3,481
CURRENT ASSETS:
Cash 629 330
Restricted cash - common stock subscribed (Note 5) - 2,532
Accounts receivable -
Customers 21,066 16,883
Others 815 1,474
Reserve for uncollectible accounts (788) (937)
Accrued utility revenues 10,319 9,004
Materials and supplies, at average cost 2,876 2,797
Gas held by suppliers, at average cost 15,140 20,025
Natural gas transition costs collectible 4,612 4,708
Deferred cost of gas and supplier refunds, net - 3,767
Prepaid expenses and other 3,486 1,483
58,155 62,066
DEFERRED CHARGES:
Regulatory assets
Deferred taxes collectible 30,015 31,696
Natural gas transition costs collectible 497 4,099
Other 2,516 3,131
Unamortized debt expense 2,630 3,539
Other - 3,552
35,658 46,017
NET ASSETS OF DISCONTINUED OPERATIONS 204,250 203,196
TOTAL ASSETS $524,218 $524,432
<FN>
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1995* 1994*
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see accompanying statements):
Common shareholders' investment (Notes 5 and 8) $162,739 $172,012
Preferred stock of PGE (Note 6) -
Not subject to mandatory redemption, net 33,615 33,615
Subject to mandatory redemption 1,680 1,760
Long-term debt (Note 7) 106,706 220,705
304,740 428,092
CURRENT LIABILITIES:
Current portion of long-term debt and
preferred stock subject to mandatory
redemption (Notes 6, 7 and 9) 116,081 3,290
Notes payable (Note 9) 10,180 -
Accounts payable 18,531 17,781
Deferred cost of gas and supplier refunds, net 434 -
Accrued general business and realty taxes 1,493 3,315
Accrued income taxes 526 3,136
Accrued interest 2,307 2,850
Accrued natural gas transition costs (Note 3) 2,278 2,356
Other 3,534 2,398
155,364 35,126
DEFERRED CREDITS:
Deferred income taxes 48,835 46,600
Accrued natural gas transition costs (Note 3) 1,144 3,250
Unamortized investment tax credits 4,938 5,110
Operating reserves 3,709 2,383
Other 5,488 3,871
64,114 61,214
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
TOTAL CAPITALIZATION AND LIABILITIES $524,218 $524,432
<FN>
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations, net of
subsidiary's preferred stock dividends $ 3,121 $ 2,313 $ 76
Effects of noncash charges to income -
Depreciation 7,018 6,693 6,413
Deferred income taxes, net (251) 752 (2,472)
Provisions for self insurance 2,652 1,030 1,510
Other, net 5,572 3,074 2,418
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues (219) 1,435 (2,099)
Gas held by suppliers 4,885 6,625 (5,038)
Accounts payable 321 (4,375) (1,233)
Deferred cost of gas and supplier refunds, net 5,715 5,784 (13,307)
Other current assets and liabilities, net (6,509) (763) 1,187
Other operating items, net 2,628 (6,588) (4,014)
Net cash provided (used) by continuing
operations 24,933 15,980 (16,559)
Net cash provided (used) by discontinued
operations 3,764 552 (837)
Net cash provided (used) by operating
activities 28,697 16,532 (17,396)
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (20,615) (16,960) (14,011)
Investment in non-regulated business (3,169) - -
Other, net (4,934) 1,098 201
Net cash used for investing activities (28,718) (15,862) (13,810)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 4,045 3,887 32,807
Common stock subscribed, net (Note 5) - 2,515 -
Redemption of preferred stock of PGE (80) (30,080) (10,080)
Dividends on common stock (12,605) (12,002) (9,805)
Issuance of long-term debt 52,000 50,000 19,000
Repayment of long-term debt (53,535) (31,055) (30,678)
Net increase in bank borrowings 10,500 15,370 32,247
Other, net (5) (1,724) (599)
Net cash provided (used) for financing
activities 320 (3,089) 32,892
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 299 (2,419) 1,686
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 330 2,749 1,063
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 629 $ 330 $ 2,749
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 27,951 $ 24,622 $ 23,992
Income taxes $ 8,748 $ 7,460 $ 6,931
<PAGE>
<FN>
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
December 31,
1995* 1994*
(Thousands of Dollars)
<S> <C> <C> <C> <C>
COMMON SHAREHOLDERS' INVESTMENT (Notes 5 and 8):
Common stock, no par value
(stated value $10 per share)
Authorized - 15,000,000 shares
Outstanding - 5,784,319 shares and
5,553,915 shares, respectively $ 57,843 $ 55,539
Common stock subscribed - 2,515
Additional paid-in capital 49,749 45,493
Retained earnings 55,147 68,465
Total common shareholders' investment 162,739 53.4% 172,012 40.2%
PREFERRED STOCK of PGE, par value $100 per share
Authorized - 997,500 shares (Note 6):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
100,000 shares issued 10,000 10,000
9% cumulative preferred,
250,000 shares outstanding, net of
issuance costs 23,615 23,615
Total preferred stock not subject to
mandatory redemption, net 33,615 11.0% 33,615 7.8%
Subject to mandatory redemption -
5.75% cumulative preferred, 17,600 and
18,400 shares outstanding, respectively 1,760 1,840
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 1,680 0.6% 1,760 0.4%
LONG-TERM DEBT (Note 7):
First mortgage bonds 55,000 108,535
Notes 167,707 115,380
Less current maturities and sinking
fund requirements (116,001) (3,210)
Total long-term debt 106,706 35.0% 220,705 51.6%
TOTAL CAPITALIZATION $ 304,740 100.0% $ 428,092 100.0%
<FN>
* See Note 2 regarding discontinued operations and restatement of consolidated
financial statements.
</FN>
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
PENNSYLVANIA ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Common Additional
Common Stock Paid-In Retained
Stock Subscribed Capital Earnings Total
(Thousands of Dollars)
Balance at December 31, 1992 $41,315 $ - $ 23,023 $ 70,806 $135,144
Net income for 1993 - - - 7,985 7,985
Issuance of common stock 12,825 - 19,982 - 32,807
Premium on redemption of
preferred stock of PGE - - - (356) (356)
Cash dividends on common stock
($2.20 per share) - - - (9,805) (9,805)
Balance at December 31, 1993 54,140 - 43,005 68,630 165,775
Net income for 1994 - - - 12,817 12,817
Issuance of common stock 1,399 - 2,488 - 3,887
Common stock subscribed, net
(Note 5) - 2,515 - - 2,515
Premium on redemption of
preferred stock of PGE - - - (980) (980)
Cash dividends on common stock
($2.20 per share) - - - (12,002) (12,002)
Balance at December 31, 1994 55,539 2,515 45,493 68,465 172,012
Net loss for 1995 - - - (713) (713)
Issuance of common stock 2,304 - 4,256 - 6,560
Common stock subscribed, net
(Note 5) - (2,515) - - (2,515)
Cash dividends on common stock
($2.20 per share) - - - (12,605) (12,605)
Balance at December 31, 1995 $57,843 $ - $ 49,749 $ 55,147 $162,739
The accompanying notes are an integral part of the consolidated financial
statements.
<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 whose principal subsidiary, PG Energy Inc. ("PGE"), a regulated
public utility formerly known as Pennsylvania Gas and Water Company, distributes
natural gas to a ten-county area in northeastern Pennsylvania, a territory that
includes 116 municipalities, in addition to the cities of Scranton, Wilkes-Barre
and Williamsport. The Company, through its remaining subsidiaries, Pennsylvania
Energy Resources, Inc. ("PERI"), Pennsylvania Energy Marketing Company ("PEM")
and Theta Land Corporation, is also engaged in various non-regulated activities,
including energy-related services and the construction, maintenance and
rehabilitation of natural gas distribution pipelines, which have not been
significant to the operations of the Company as a whole.
Principles of Consolidation. The consolidated financial statements include
the accounts of the Company and its subsidiaries, PGE, PERI, PEM and Theta. The
consolidated financial statements also include the accounts of Keystone Pipeline
Services, Inc. ("Keystone"), a wholly-owned subsidiary of PERI, from December 4,
1995, the date Keystone was acquired by PERI. All material intercompany
accounts have been eliminated in consolidation.
PGE, a wholly-owned subsidiary of Pennsylvania Enterprises, Inc., is a
regulated public utility subject to the jurisdiction of the Pennsylvania Public
Utility Commission ("PPUC") for rate and accounting purposes. The financial
statements of PGE that are incorporated in these consolidated financial
statements have 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 or
regulatory agencies such as the PPUC.
The operations of PERI, including Keystone from its date of acquisition, PEM
and Theta, which are summarized in Note 4 to these consolidated financial
statements, were not significant to the operations of the Company as a whole and
are reflected in the consolidated financial statements in "Other Income
(deductions), net."
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 which are difficult to
predict and are beyond the control of the Company. Therefore, actual amounts
could differ from these estimates.
Utility Plant and Depreciation. Utility plant is stated at cost, which
represents the original cost of construction, including payroll, administrative
and general costs, and an allowance for funds used during construction.
<PAGE>
The allowance for funds used during construction ("AFUDC") is defined as the
net cost during the period of construction of borrowed funds used and a
reasonable rate upon other funds when so used. Such allowance is charged to
utility plant and reported as a reduction of interest expense (with respect to
the cost of borrowed funds) in the accompanying consolidated statements of
income. AFUDC varies according to changes in the level of construction work in
progress and in the sources and costs of capital. The weighted average rate for
such allowance was approximately 8% in 1995, 7% in 1994 and 8% in 1993.
PGE provides for depreciation on a straight-line basis. Exclusive of
transportation and work equipment, the annual provision for depreciation, as
related to the average depreciable original cost of utility plant, was 2.75% in
1995, 2.77% in 1994 and 2.81% in 1993, respectively.
When depreciable property is retired, the original cost of such property is
removed from the utility plant accounts and is charged, together with the cost
of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. PGE bills its customers monthly based on
estimated or actual meter readings on cycles that extend throughout the month.
The estimated unbilled amounts from the most recent meter reading dates through
the end of the period being reported on are recorded as accrued revenues.
PGE generally passes on to its customers increases or decreases in gas costs
from those reflected in its tariff charges. In accordance with this procedure,
PGE defers any current under or over-recoveries of gas costs and collects or
refunds such amounts in subsequent periods.
Deferred Charges (Regulatory Assets). PGE generally accounts for and
reports its costs in accordance with the economic effect of rate actions by the
PPUC. To this extent, certain costs are recorded as deferred charges pending
their recovery in rates. These amounts relate to previously-issued orders of
the PPUC and are of a nature which, in the opinion of the Company, will be
recoverable in future rates, based on such rate orders. In addition to deferred
taxes collectible, which represent the probable future rate recovery of the
previously unrecorded deferred taxes primarily relating to certain temporary
differences in the basis of utility plant not previously recorded because of the
regulatory rate practices of the PPUC, and natural gas transition costs
collectible, the following deferred charges are included as "Other" regulatory
assets:
1995 1994
Early retirement plan charges $ 710 $ 756
Low income usage reduction program 429 441
Computer software costs 415 1,006
Corrosion control costs 341 489
Customer assistance program 109 5
Other 512 434
Total $ 2,516 $ 3,131
The Company also records, as deferred charges, the direct financing costs
incurred in connection with the issuance of long-term debt and redeemable
preferred stock and equitably amortizes such amounts over the life of such
securities.
<PAGE>
Cash and Cash Equivalents. For the purposes of the consolidated statements
of cash flows, the Company considers all highly liquid debt instruments
purchased, which generally have a maturity of three months or less, to be cash
equivalents. Such instruments are carried at cost, which approximates market
value.
Income Taxes. The Company provides for deferred taxes in accordance with
the provisions of FASB Statement 109. The components of the Company's net
deferred income tax liability relative to continuing operations as of December
31, 1995 and 1994, are shown below:
1995 1994
(Thousands of Dollars)
Utility plant basis differences $51,822 $49,638
FERC Order 636 transition costs 700 1,371
Alternative minimum tax (1,947) (2,213)
Operating reserves (1,300) (1,020)
Other (440) (1,176)
Net deferred income tax liability $48,835 $46,600
The provision for income taxes relative to continuing operations consists of
the following components:
1995 1994 1993
(Thousands of Dollars)
Included in operating expenses:
Currently payable -
Federal $ 2,845 $ 1,654 $ 4,535
State 1,169 1,128 2,021
Total currently payable 4,014 2,782 6,556
Deferred, net -
Federal 198 1,785 (515)
State (463) (105) (934)
Total deferred, net (265) 1,680 (1,449)
Amortization of investment tax credits (193) (172) (172)
Total included in operating expenses 3,556 4,290 4,935
Included in other income, net:
Currently payable -
Federal 410 345 93
State 159 170 35
Total currently payable 569 515 128
Deferred, net -
Federal - 10 7
State - 12 6
Total deferred, net - 22 13
Total included in other income, net 569 537 141
Total provision for income taxes $ 4,125 $ 4,827 $ 5,076
<PAGE>
The components of deferred income taxes relative to continuing operations,
which are recorded consistent with the treatment allowed by the PPUC for
ratemaking purposes, are as follows:
1995 1994 1993
(Thousands of Dollars)
Excess of tax depreciation over
depreciation for accounting purposes $ 1,587 $ 1,197 $ 1,023
FERC Order 636 transition costs (670) 1,371 -
Take-or-pay costs, net (281) (652) (1,126)
Other, net (901) (214) (1,333)
Total deferred taxes, net $ (265) $ 1,702 $(1,436)
Included in:
Operating expenses $ (265) $ 1,680 $(1,449)
Other income, net - 22 13
Total deferred taxes, net $ (265) $ 1,702 $(1,436)
The total provision for income taxes relative to continuing operations shown
in the accompanying consolidated statements of income differs from the amount
which would be computed by applying the statutory federal income tax rate to
income before income taxes. The following table summarizes the major reasons
for this difference:
1995 1994 1993
(Thousands of Dollars)
Income before income taxes $10,009 $11,828 $11,687
Tax expense at statutory federal
income tax rate $ 3,503 $ 4,140 $ 4,090
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 562 942 924
Amortization of investment tax
credits (193) (172) (172)
Other, net 253 (83) 234
Total provision for income taxes $ 4,125 $ 4,827 $ 5,076
Long Lived Assets. In March 1995, FASB Statement 121, "Accounting for the
Impairment of Long-Lived Assets", was issued. The provisions of this statement,
which are effective for fiscal years beginning after September 15, 1995, require
that long-lived assets, identifiable intangibles, capital leases and goodwill be
reviewed for impairment whenever events occur or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable. In
addition, FASB Statement 121 requires that regulatory assets meet the recovery
criteria of FASB Statement 71, "Accounting for Effects of Certain Types of
Regulation", on an ongoing basis in order to avoid a writedown. The
implementation of FASB Statement 121 in 1996 is not expected to have any
significant impact on the Company or PGE since the carrying amount of all
assets, including regulatory assets, is considered recoverable.
<PAGE>
(2) DISCONTINUED OPERATIONS
On April 26, 1995, the Company and PGE signed a definitive agreement (the
"Agreement") with American Water Works Company, Inc. ("American") and
Pennsylvania-American Water Company ("Pennsylvania-American"), a wholly-owned
subsidiary of American, providing for the sale to Pennsylvania-American of
substantially all of the assets, properties and rights of PGE's water utility
operations.
Under the terms of the Agreement, Pennsylvania-American paid approximately
$413.5 million consisting of $266.4 million in cash and the assumption of $147.1
million of PGE's liabilities, including $141.1 million of its long-term debt, to
PGE on the February 16, 1996, closing date for the transaction. This price is
subject to certain post-closing adjustments. PGE continued to operate the water
utility business until the closing date.
The sale price reflects a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other
items, principally the write-off of certain deferred regulatory assets and
deferred credits and the impact of pension and other postretirement benefit
expenses relative to the early retirement plan (see Note 10 of the Notes to
Consolidated Financial Statements), the sale resulted in an estimated after tax
loss of $6.0 million, net of the expected income from the water operations
during the phase-out period (which for financial reporting purposes was April 1,
1995, through February 15, 1996). The sale involved a gain for income tax
purposes, primarily because of the accelerated depreciation that had been
claimed by PGE with respect to the water utility plant that was sold. It is
estimated that the income taxes payable on the sale, for which deferred income
taxes had previously been provided, will be approximately $56.7 million.
The net cash proceeds from the sale of approximately $209.1 million, net of
the estimated $56.7 million payable for income taxes, are being used by the
Company and PGE to retire debt, to repurchase stock and for working capital for
their continuing operations. With the sale of PGE's water utility operations,
the principal assets of the Company and PGE consist of PGE's gas utility
operations and approximately 46,000 acres of land.
The accompanying consolidated financial statements reflect PGE's water
utility operations as "discontinued operations" effective March 31, 1995.
Interest charges relating to indebtedness of PGE have been allocated to the
discontinued operations based on the relationship of the gross water utility
plant that was sold to the total of PGE's gross gas and water utility plant.
This is the same method as was utilized by PGE and the PPUC in establishing the
revenue requirements of both PGE's gas and water utility operations. None of
the dividends on PGE's preferred stock nor any of the Company's interest expense
has been allocated to the discontinued operations.
<PAGE>
Selected financial information for the discontinued operations as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and
1993 is set forth below:
Net Assets of Discontinued Operations
As of December 31,
1995 1994
(Thousands of Dollars)
Net utility plant $ 368,742 $ 359,399
Current assets (primarily accounts
receivable and accrued revenues) 12,756 12,141
Deferred charges and other assets 25,752 31,103
Total assets being acquired by
Pennsylvania-American 407,250 402,643
Liabilities being assumed by
Pennsylvania-American
Long-term debt 141,097 141,420
Other 5,983 13,168
147,080 154,588
Net assets being acquired by
Pennsylvania-American 260,170 248,055
Estimated liability for income taxes on
sale of discontinued operations (56,710) (55,542)
Estimated net income of discontinued operations
during the remainder of the phase-out period 790 -
Other net assets of discontinued operations
(written off as of March 31, 1995) - 10,683
Total net assets of discontinued operations $ 204,250 $ 203,196
Income From Discontinued Operations
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
Operating revenues $ 15,640 $ 66,731 $ 53,363
Operating expenses, excluding income taxes
Depreciation 1,946 7,672 5,911
Other operating expenses 6,929 29,005 27,140
8,875 36,677 33,051
Operating income before income taxes 6,765 30,054 20,312
Income taxes 1,403 6,850 2,948
Operating income 5,362 23,204 17,364
Other income 9 49 71
Allocated interest charges (3,244) (12,749) (9,526)
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
<PAGE>
Net Cash Provided (Used) by Discontinued Operations
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
Noncash charges (credits) to income:
Depreciation 1,946 7,672 5,911
Deferred treatment plant costs, net 145 581 (3,560)
Deferred income taxes 447 5,146 4,170
Deferred water utility billings - (5,574) (582)
Changes in working capital, exclusive
of long-term debt 1,648 353 (2,041)
Additions to utility plant (2,276) (20,980) (32,515)
Utilization of restricted funds - 9,753 15,868
Net increase (decrease) in long-term
debt 1,010 (6,834) 1,640
Other, net (1,283) (69) 2,363
Net cash provided (used) for discontinued
operations $ 3,764 $ 552 $ (837)
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
(3) RATE MATTERS
Annual Gas Cost Adjustment. Pursuant to the provisions of the Pennsylvania
Public Utility Code, which require that the tariffs of gas distribution
companies, such as PGE, be adjusted on an annual basis, and on an interim basis
when circumstances dictate, to reflect changes in their purchased gas costs, the
PPUC ordered PGE to make the following changes during 1995, 1994 and 1993 to the
gas costs contained in its gas tariff rates:
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
December 1, 1995 $2.42 $2.75 $ 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)
December 1, 1994 3.74 3.68 (1,800,000)
December 1, 1993 2.79 3.74 28,800,000
The changes in gas rates on account of purchased gas costs have no effect on
PGE's earnings since the change in revenue is offset by a corresponding change
in the cost of gas.
Quarterly Gas Cost Adjustment. Effective September 14, 1995, the PPUC
adopted regulations that provide for the quarterly adjustment of the annual
purchased gas cost rate of larger gas distribution companies, including PGE.
Such adjustments are allowed when the actual purchased gas costs vary from the
estimated costs reflected in the respective company's tariffs by 2% or more.
Except for reducing the amount of any over or undercollections of gas costs,
these regulations will not have any material effect on PGE's financial position
or results of operations, and PGE will still be required to file an annual
purchased gas cost rate. As of March 1, 1996, no such quarterly gas cost
adjustments had been made to PGE's tariffs.
<PAGE>
Recovery of FERC Order 636 Transition Costs. On October 15, 1993, the PPUC
adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding
recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition
costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filing.
PGE was billed a total of $1.3 million of Gas Transition Costs by its interstate
pipelines. Of this amount, $858,000 was recovered by PGE over a twelve-month
period ended January 31, 1995, through an increase in its PGC rate, $252,000 are
being recovered by PGE in its annual PGC rate that the PPUC approved effective
December 1, 1995, and the recovery of the remaining $217,000 will be sought by
PGE in its PGC rate that is effective December 1, 1996.
The PGC Order also indicated that while Gas Supply Realignment and Stranded
Costs (the "Non-Gas Transition Costs") are not natural gas costs eligible for
recovery under the PGC rate filing mechanism, such costs are subject to full
recovery by local distribution companies through the filing of a tariff pursuant
to either the existing surcharge or base rate provisions of the Pennsylvania
Public Utility Code. By Order of the PPUC entered August 26, 1994, PGE began
recovering the Non-Gas Transition Costs that it estimates it will ultimately be
billed pursuant to FERC Order 636 through the billing of a surcharge to its
customers effective September 12, 1994. It is currently estimated that $9.6
million of Non-Gas Transition Costs will be billed to PGE, generally over a
four-year period extending through the fourth quarter of 1997, of which $6.1
million had been billed to PGE and $4.4 million had been recovered from its
customers as of December 31, 1995. PGE has recorded the estimated Non-Gas
Transition Costs that remain to be billed to it and the amounts remaining to be
recovered from its customers.
<PAGE>
(4) OTHER INCOME (DEDUCTIONS), NET
Other income (deductions), net was comprised of the following elements:
1995 1994 1993
(Thousands of Dollars)
Earnings of non-regulated subsidiaries $ 651 $ 395 $ 316
Write-off of expired advances relating
to income taxes, net of related
income taxes 227 - -
Net interest income (expense) with respect
to proceeds from the issuance of debt
held in a construction fund 30 (91) (330)
Gain on sale of investment in joint
venture, net of related income taxes - 268 -
Gain on sale of land and other property,
net of related income taxes - 165 20
Holding company expenses, net of related
income tax benefits (189) (209) (203)
Premium on retirement/defeasance of debt (11) (40) (81)
Amortization of preferred stock issuance
costs, net of related income tax benefits (1) (227) (126)
Other 56 (3) (68)
Total $ 763 $ 258 $ (472)
Summary financial data for non-regulated
subsidiaries:
Revenues $ 8,479 $ 9,127 $ 6,574
Expenses 7,828 8,732 6,258
Net income $ 651 $ 395 $ 316
Total assets (including, $66,000,
$294,000 and $817,000, respectively,
eliminated in consolidation) $ 5,272 $ 1,753 $ 2,534
(5) COMMON STOCK
Customer Stock Purchase Plan. On July 28, 1994, the Company implemented a
Customer Stock Purchase Plan (the "Customer Plan") which provided the
residential customers of PGE with a method of purchasing newly-issued shares of
the Company's common stock at a 5% discount from the market price. Under the
terms of the Customer Plan, 88,231 shares ($2.4 million) and 59,537 shares ($1.7
million) of the Company's common stock were issued during 1995 and 1994,
respectively. Effective May 9, 1995, the Company suspended the Customer Plan
because of the significant reduction in its capital requirements resulting from
the sale of PGE's water utility operations to Pennsylvania-American.
On January 3, 1995, the Company issued 45,360 shares of its common stock for
an aggregate consideration of $1.2 million with respect to payments received
pursuant to the Customer Plan during the December, 1994, subscription period.
The payments so received during December are reflected under the captions
"Restricted cash - Common stock subscribed" and "Common shareholders' investment
- - Common stock subscribed" in these consolidated financial statements as of
December 31, 1994.
<PAGE>
Dividend Reinvestment and Stock Purchase Plan. Through the Company's
Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders of shares of the
Company's common stock may reinvest cash dividends and/or make cash investments
in the common stock of the Company. Under the DRP, 116,505 shares ($3.3
million), 62,271 shares ($1.8 million) and 15,988 shares ($465,000) of common
stock were issued during 1995, 1994 and 1993, respectively. The DRP was amended
on May 5, 1994, to provide the Company's shareholders with a method of
reinvesting cash dividends and making cash investments to purchase newly-issued
shares of the Company's common stock at a 5% discount from the market price.
Prior to such amendment, cash dividends were reinvested at 100% of the market
price in newly-issued shares and cash investments were used to purchase shares
of the Company's common stock on the open market. Effective May 9, 1995, the
Company suspended the cash investment feature of the DRP and the 5% discount
from the market price on the reinvestment of dividends under the DRP because of
the significant reduction in capital requirements resulting from the sale of
PGE's water utility operations to Pennsylvania-American.
On January 3, 1995, the Company issued 51,565 shares of its common stock for
an aggregate consideration of $1.3 million with respect to cash investments made
pursuant to the DRP during the fourth quarter of 1994. The investments made
during the fourth quarter are reflected under the captions "Restricted cash -
common stock subscribed" and "Common shareholders' investment - Common stock
subscribed" in these consolidated financial statements as of December 31, 1994.
Employees' Savings Plan. Under the Company's Employees' Savings Plan (a
section 401(k) plan) which became effective January 1, 1992, the Company issued
an additional 19,468 shares ($628,000) in 1995, 18,100 shares ($540,000) in 1994
and 16,478 shares ($481,000) in 1993.
Stock Option Plan. On June 3, 1992, the Company's shareholders approved the
Pennsylvania Enterprises, Inc. 1992 Stock Option Plan (the "Plan"). Under the
terms of the Plan, a total of 200,000 shares of authorized but unissued common
stock were reserved and made available for distribution to eligible employees.
Stock options awarded under the Plan may be either Incentive Stock Options or
Non-qualified Stock Options. On April 7, 1993, Non-qualified Stock Options to
purchase 45,000 shares of common stock were issued to eligible employees at an
exercise price of $30 per share (the fair market value of the common stock on
such date). These options, which expire on April 6, 2003, could not be
exercised prior to April 7, 1994. As of December 31, 1995, the options for 400
such shares had expired, 4,800 had been exercised and 39,800 options remained
outstanding. In addition, as of such date, 155,400 shares of authorized but
unissued common stock were reserved for distribution to eligible employees under
the terms of the Plan, including 400 shares for which previously granted options
had expired.
Shareholder Rights Plan. On April 26, 1995, the Company adopted a
Shareholder Rights Plan under the terms of which each shareholder of record at
the close of business on May 16, 1995, will receive a dividend distribution of
one right ("Right" or "Rights") for each share of common stock held.
Each Right will entitle shareholders to purchase from the Company one-half
of a share of common stock. No less than two Rights, and only integral
multiples of two Rights, may be exercised by holders of Rights at an exercise
price of $100 per share of common stock (equivalent to $50 for each one-half
share of common stock), subject to certain adjustments. The Rights will become
exercisable only if a person or group acquires 15% or more of the Company's
common stock, or commences a tender or exchange offer which, if consummated,
would result in that person or group owning at least 15% of the common stock.
Prior to that time, the Rights will not trade separately from the common stock.
<PAGE>
If a person or group acquires 15% or more of the Company's common stock, all
other holders of Rights will then be entitled to purchase, by payment of the
$100 exercise price upon the exercise of two Rights, the Company's common stock
(or a common stock equivalent) with a value of twice the exercise price. In
addition, at any time after a 15% position is acquired and prior to the
acquisition by any person or group of 50% or more of the outstanding common
stock, the Company's Board of Directors may, at its option, require each
outstanding Right (other than Rights held by the acquiring person or group) to
be exchanged for one share of common stock (or one common stock equivalent).
If, following an acquisition of 15% or more of the Company's common stock,
the Company is acquired by any person in a merger or other business combination
transaction or sells more than 50% of its assets or earning power to any person
(other than the sale of PGE's water utility operations to Pennsylvania-
American), all other holders of Rights will then be entitled to purchase, by
payment of the $100 exercise price upon the exercise of two Rights, common stock
of the acquiring company with a value of twice the exercise price.
The Company may redeem the Rights at $.005 per Right at any time prior to
the time that a person or group has acquired 15% or more of its common stock.
The Rights, which expire on May 16, 2005, do not have voting or dividend rights
and, until they become exercisable, have no dilutive effect on the earnings per
share of the Company.
(6) PREFERRED STOCK
Preferred Stock of PGE Subject to Mandatory Redemption
On December 23, 1993, PGE redeemed 100,000 shares of its 9.50% 1988 series
cumulative preferred stock at a price of $103.5625 per share (plus accrued
dividends to the redemption date), which included a voluntary redemption premium
of $3.5625 per share ($356,250 in the aggregate). On May 31, 1994, PGE redeemed
the remaining 150,000 outstanding shares of its 9.50% 1988 series cumulative
preferred stock, $100 par value, at a price of $103.5625 per share, which
included a voluntary redemption premium of $3.5625 per share ($534,375 in the
aggregate), plus accrued dividends.
On December 16, 1994, PGE redeemed all 150,000 shares of its 8.90%
cumulative preferred stock at a price of $102.97 per share, which included a
voluntary redemption premium of $2.97 per share ($445,500 in the aggregate).
The holders of the 5.75% cumulative preferred stock have a noncumulative
right each year to tender to PGE and to require it to purchase at a per share
price not exceeding $100, up to (a) that number of shares of the 5.75%
cumulative preferred stock which can be acquired for an aggregate purchase price
of $80,000 less (b) the number of such shares which PGE may already have
purchased during the year at a per share price of not more than $100. Eight
hundred such shares were acquired and cancelled by PGE in each of the three
years in the period ended December 31, 1995, for an aggregate purchase price in
each year of $80,000.
As of December 31, 1995, the sinking fund requirements relative to PGE's
5.75% cumulative preferred stock (the only series of preferred stock subject to
mandatory redemption that was outstanding as of such date) were $80,000 for each
of the years 1996 through 2000.
<PAGE>
At PGE's option, the 5.75% cumulative preferred stock may currently be
redeemed at a price of $102.00 per share ($1,795,200 in the aggregate).
Preferred Stock of PGE Not Subject to Mandatory Redemption
On August 18, 1992, PGE issued 250,000 shares of its 9% cumulative preferred
stock, par value $100 per share, for aggregate net proceeds of approximately
$23.6 million. The 9% cumulative preferred stock is not redeemable by PGE prior
to September 15, 1997. Thereafter, it is redeemable at the option of PGE, in
whole or in part, upon not less than 30 days' notice, at $100 per share plus
accrued dividends to the date of redemption and at a premium of $8 per share if
redeemed from September 15, 1997, to September 14, 1998, and a premium of $4 per
share if redeemed from September 15, 1998, to September 14, 1999.
At PGE's option, the 4.10% cumulative preferred stock may currently be
redeemed at a redemption price of $105.50 per share or for an aggregate
redemption price of $10,550,000.
Dividend Information
The dividends on the preferred stock of PGE in each of the three years in
the period ended December 31, 1995, were as follows:
Series 1995 1994 1993
(Thousands of Dollars)
4.10% $ 410 $ 410 $ 410
5.75% 103 108 113
8.90% - 1,280 1,335
9.00% 2,250 2,250 2,250
9.50% 1988 series - 591 2,354
Total $2,763 $4,639 $6,462
Dividends on all series of PGE's preferred stock are cumulative, and if
dividends in an amount equivalent to four full quarterly dividends on all shares
of preferred stock then outstanding are in default and until all such dividends
have been paid, the holders of the preferred stock, voting separately as one
class, shall be entitled to elect a majority of the Board of Directors of PGE.
Additionally, PGE may not declare dividends on its common stock if any dividends
on shares of preferred stock then outstanding are in default.
<PAGE>
(7) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1995
and 1994:
1995 1994
(Thousands of Dollars)
Indebtedness of the Company:
10.125% senior notes, due 1999, net of
unamortized discount $ 29,906 $ 29,880
Term loan, due 1999 20,000 20,000
Total long-term debt of the Company 49,906 49,880
Indebtedness of PGE:
First mortgage bonds -
8 % Series, due 1997 - 3,535
8.375% Series, due 2002 30,000 30,000
9.23 % Series, due 1999 10,000 10,000
9.34 % Series, due 2019 15,000 15,000
9.57 % Series, due 1996 - 50,000
55,000 108,535
Notes -
Term loan, due 1996 50,000 -
Bank borrowings, at weighted average interest
rates of 6.62% and 5.28%, respectively (Note 9) 65,801 65,500
115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt of PGE 55,000 170,825
Indebtedness of PERI:
Term loan, due 2000 2,000 -
Less current maturities (200) -
Total long-term debt of PERI 1,800 -
Total consolidated long-term debt $106,706 $220,705
Term Loan Agreements. On May 31, 1994, the Company borrowed $20.0 million
pursuant to a five-year term loan agreement (the "Term Loan Agreement"), which
loan matures on May 31, 1999. Borrowings under the Term Loan Agreement bear
interest at LIBOR ("London Interbank Offered Rates") plus one-half of one
percent (5.875% as of March 1, 1996). Under the terms of the Term Loan
Agreement, the Company can choose interest rate periods of one, two, three or
six months. The Company utilized the proceeds from such loan to purchase $20.0
million of PGE common stock. PGE used a portion of the proceeds it so received
to redeem $15.0 million of its 9.50% cumulative preferred stock and to fund the
$534,375 premium in connection with such redemption. The remaining $4.5 million
of proceeds were used by PGE to repay a portion of its bank borrowings and for
working capital purposes.
On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan
agreement, which matures on November 1, 1996. Proceeds from the loan, along
with other funds provided by PGE, were utilized on October 13, 1995, to redeem
the $50.0 million principal amount of PGE's 9.57% Series First Mortgage Bonds
due September 1, 1996.
On December 7, 1995, PERI borrowed $2.0 million pursuant to a five-year term
loan agreement, which loan matures November 30, 2000. Borrowings under the
agreement bear interest at a fixed rate of 6.54%. PERI used the proceeds it so
received along with an equity investment from the Company to acquire all of the
outstanding stock of Keystone Pipeline Services, Inc. (formerly known as Ford,
<PAGE>
Bacon & Davis Sealants, Inc.) from Ford, Bacon & Davis Companies, Inc., a
wholly-owned subsidiary of Deutsche Babcock Technologies, Inc. Under the terms
of the term loan agreement, PERI is required to make principal repayments of
$200,000, $300,000, $400,000, $500,000 and $600,000 during the years 1996, 1997,
1998, 1999 and 2000, respectively.
<PAGE>
Maturities and Sinking Fund Requirements. As of December 31, 1995, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
Year Amount
1996 $116,001,000 (a)
1997 $ 300,000
1998 $ 400,000
1999 $ 60,500,000 (b)
2000 $ 600,000
(a) Includes $65.8 million of PGE bank borrowings outstanding as of December
31, 1995, and PGE's term loan in the principal amount of $50.0 million.
Such amounts were repaid on February 16, 1996, with proceeds from the
sale of PGE's water operations to Pennsylvania-American.
(b) Includes the $20.0 million of borrowings outstanding as of December 31,
1995, under the Company's Term Loan Agreement due May 31, 1999, the
Company's 10.125% Senior Notes in the principal amount of $30.0 million
due June 15, 1999, and PGE's 9.23% Series First Mortgage Bonds in the
principal amount of $10.0 million due September 1, 1999.
(8) DIVIDEND RESTRICTIONS
There are no dividend restrictions in the Restated Articles of Incorporation
of the Company. However, the preferred stock provisions of PGE's Restated
Articles of Incorporation and certain of the agreements under which the Company
and PGE have issued long-term debt provide for certain dividend restrictions.
As of December 31, 1995, $5,416,000 of the consolidated retained earnings of the
Company were restricted against the payment of cash dividends on common stock
under the most restrictive of these covenants.
(9) BANK NOTES PAYABLE
As of April 19, 1993, PGE entered into a revolving bank credit agreement, as
subsequently amended (the "Credit Agreement") with a group of six banks under
the terms of which $60.0 million was available for borrowing by PGE through May
31, 1996. The Credit Agreement was terminated on February 26, 1996, following
the sale of PGE's water operations to Pennsylvania-American on February 16,
1996, and repayment of all borrowings outstanding under the Credit Agreement
with proceeds from such sale. The interest rate on borrowings under the Credit
Agreement was generally less than prime. The Credit Agreement also required the
payment of a commitment fee of .195% per annum on the average daily amount of
the unused portion of the available funds. PGE currently has four additional
bank lines of credit with an aggregate borrowing capacity of $17.5 million which
provide for borrowings at interest rates generally less than prime. Borrowings
outstanding under two of these bank lines of credit with borrowing capacities of
$2.5 million and $5.0 million mature on May 31, 1996, and June 30, 1996,
respectively. Borrowings outstanding under the other two bank lines of credit
with borrowing capacities of $3.0 million and $7.0 million mature on March 31,
1996, and May 31, 1996, respectively. As of March 1, 1996, PGE had no
borrowings outstanding under these additional bank lines of credit.
Additionally, PGE had one other bank line of credit outstanding as of December
31, 1995, with a borrowing capacity of $3.0 million, which was terminated
following the sale of PGE's water operations. The commitment fees paid by PGE
with respect to its revolving bank credit agreements totaled $26,000 in 1995,
$97,000 in 1994 and $113,000 in 1993.
Because of limitations imposed by the terms of PGE's preferred stock, PGE is
prohibited, without the consent of the holders of a majority of the outstanding
shares of its preferred stock, from issuing more than $12.0 million of unsecured
debt due on demand or within one year from issuance. PGE had $10.0 million due
on demand or within one year from issuance outstanding as of December 31, 1995.
<PAGE>
Information relating to PGE's bank lines of credit and borrowings under
those lines of credit is set forth below:
As of December 31,
1995 1994 1993
(Thousands of Dollars)
Borrowings under lines of credit
Short-term $ 10,000 $ - $ 2,000
Long-term 65,801 65,500 47,000
$ 75,801 $ 65,500 $ 49,000
Unused lines of credit
Short-term $ - $ - $ 5,000
Long-term 4,699 2,000 13,000
$ 4,699 $ 2,000 $ 18,000
Total lines of credit
Prime rate $ - $ - $ 2,000
Other than prime rate 80,500 67,500 65,000
$ 80,500 $ 67,500 $ 67,000
Short-term bank borrowings (a)
Maximum amount outstanding $ 10,000 $ 5,692 $ 5,666
Daily average amount outstanding $ 2,581 $ 441 $ 637
Weighted daily average interest
rate 6.513% 3.984% 4.046%
Weighted average interest rate at
year-end 6.334% - 4.208%
Range of interest rates 6.290- 3.700- 3.750-
6.660% 6.000% 6.000%
(a) PGE had no short-term bank borrowings outstanding as of December 31,
1994.
(10) POSTEMPLOYMENT BENEFITS
Pension Benefits
The Company's retirement plan is a trusteed, noncontributory, defined
benefit pension plan which covers substantially all employees of the Company
except those of Keystone. Pension benefits are based on years of service and
average final salary. The Company's funding policy is to contribute an amount
necessary to provide for benefits based on service to date, as well as for
benefits expected to be earned in the future by current participants. To the
extent that the present value of these obligations is fully covered by assets in
the trust, a contribution may not be made for a particular year.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligations relating to employees of PGE who
accepted employment with Pennsylvania-American (the "Transferred Employees").
In this regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees will be
transferred to the American pension plan. In February, 1996, PGE began
terminating additional employees as a result of the sale of its water operations
and the transfer of fewer employees to Pennsylvania-American than originally
expected. As a result of these actions, the Company recognized an estimated
settlement loss of $200,000 ($117,000 net of the related income tax benefit) and
curtailment gain of $2.7 million ($1.6 million net of related income taxes) in
<PAGE>
its determination of the estimated loss on the disposal of PGE's water utility
operations.
<PAGE>
In December, 1995, as a result of the agreement to transfer fewer employees
to Pennsylvania-American in connection with the sale of PGE's water utility
operations than originally expected, the Company offered an Early Retirement
Plan ("ERP") to its employees who would be 59 years of age or older and have a
minimum of five years of service as of December 31, 1995. Of the 63 eligible
employees, 50 elected to accept this offer and retire as of December 31, 1995,
resulting in the recording, as of December 31, 1995, of an additional pension
liability of $1.6 million reflecting the increased costs associated with the
ERP. Such amount was charged to the estimated loss on the disposal of PGE's
water utility operations.
Net pension costs relative to continuing operations, including amounts
capitalized, were $353,000, $309,000 and $244,000 in 1995, 1994 and 1993,
respectively. The following items were the components of such net pension
costs:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned
during the year $ 430 $ 549 $ 470
Interest cost on projected benefit
obligations 1,459 1,400 1,321
Return on plan assets (1,502) 535 (1,720)
Net amortization and deferral (34) (55) (53)
Deferral of investment (loss) gain - (2,120) 226
Net pension cost $ 353 $ 309 $ 244
The funded status of the plan as of December 31, 1995 and 1994, was as
follows:
1995 1994
(Thousands of Dollars)
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 29,100 $ 21,592
Nonvested 47 77
Total 29,147 21,669
Provision for future salary increases 7,841 7,565
Projected benefit obligations 36,988 29,234
Market value of plan assets, primarily
invested in equities and bonds 34,000 30,457
Plan assets in excess of (less than) projected
benefit obligations (2,988) 1,223
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (2,155) (2,528)
Unrecognized prior service costs 1,507 2,150
Unrecognized net (gain) loss 2,155 (1,644)
Accrued pension cost at year-end $ (1,481) $ (799)
The assumptions used in determining pension obligations were:
1995 1994 1993
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
<PAGE>
Other Postretirement Benefits
In addition to pension benefits, the Company provides certain health care
and life insurance benefits for retired employees. All of the Company's
employees, except those of Keystone, may become eligible for those benefits if
they reach retirement age while working for the Company. The Company records
the cost of retiree health care and life insurance benefits as a liability over
the employees' active service periods instead of on a benefits-paid basis.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligation relating to the Transferred
Employees, as well as 45% of PGE's retired employees as of that date. In this
regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees and 45% of the
retired employees as of February 16, 1996, will be transferred to trusts
established by Pennsylvania-American. In February, 1996, PGE began terminating
additional employees as a result of the sale of its water operations and the
transfer of fewer employees to Pennsylvania-American than originally expected.
As a result of the transfer, early retirement and displacement of employees, the
Company recognized an estimated settlement and curtailment loss of $385,000
($225,000 net of the related income tax benefit) as part of the loss on the
disposal of PGE's water utility operations.
As a result of the ERP offered by the Company to certain of its employees,
PGE recorded, as of December 31, 1995, an additional liability of $805,000,
($471,000 net of the related income tax benefit) reflecting the cost of future
health care benefits required to be recognized under FASB Statement 88 in
conjunction with the ERP. Such amount was charged to the estimated loss on
disposal of PGE's water utility operations.
The following items were the components of the net cost of postretirement
benefits other than pensions relative to continuing operations for the years
1995, 1994 and 1993:
1995 1994 1993
(Thousands of Dollars)
Present value of benefits earned during
the year $ 127 $ 148 $ 124
Interest cost on accumulated benefit
obligation 577 532 532
Return on plan assets (69) (4) -
Net amortization and deferral 391 360 339
Net cost of postretirement benefits other
than pensions 1,026 1,036 995
Less disbursements for benefits (555) (543) (540)
Increase in liability for postretirement
benefits other than pensions $ 471 $ 493 $ 455
<PAGE>
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1995 and 1994, follow:
1995 1994
(Thousands of Dollars)
Accumulated benefit obligation:
Retirees $ 6,514 $ 9,021
Fully eligible active employees 850 1,628
Other active employees 1,074 1,305
8,438 11,954
Plan assets at fair value - 839
Accumulated benefit obligation
in excess of plan assets 8,438 11,115
Unrecognized transition obligation
being amortized over 20 years (5,438) (11,108)
Unrecognized net gain (loss) (703) 885
Accrued liability for postretirement
benefits other than pensions $ 2,297 $ 892
The assumptions used in determining other postretirement benefit obligations
were:
1995 1994 1993
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
It was also assumed that the per capita cost of covered health care benefits
would increase at an annual rate of 9% in 1996 and that this rate would decrease
gradually to 5-1/2% for the year 2003 and remain at that level thereafter. The
health care cost trend rate assumption had a significant effect on the amounts
accrued. To illustrate, increasing the assumed health care cost trend rate by 1
percentage point in each year would increase the transition obligation as of
January 1, 1995, by approximately $394,000 and the aggregate of the service and
interest cost components of the net cost of postretirement benefits other than
pensions for the year 1995 by approximately $50,000.
Since PGE has not sought to increase its base gas rates, the $441,000
($258,000 net of related income taxes), $447,000 ($256,000 net of related income
taxes) and $407,000 ($232,000 net of related income taxes) of additional cost
incurred in 1995, 1994 and 1993, respectively, as a result of the adoption of
the provisions of FASB Statement 106 were expensed without any adjustment being
made to its gas rates.
Other Postemployment Benefits
In December, 1992, FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," was issued. The provisions of this statement require
the recording of a liability for postemployment benefits (such as disability
benefits, including workers' compensation, salary continuation and the
continuation of benefits such as health care and life insurance) provided to
former or inactive employees, their beneficiaries and covered dependents. The
Company consistently recorded liabilities for benefits of this nature prior to
the effectiveness of FASB Statement 112, and included liabilities for employees
<PAGE>
scheduled to be terminated in 1996 as a result of the sale of water operations
in its estimate of accrued costs relative to such sale as of December 31, 1995.
The provisions of FASB Statement 112, which the Company adopted effective
January 1, 1994, did not have a material impact on its financial position or
results of operations.
(11) CONSTRUCTION EXPENDITURES
PGE estimates the cost of its 1996 construction program will be $28.9
million. It is anticipated that such expenditures will be financed with
internally generated funds and bank borrowings, pending the periodic issuance of
stock and long-term debt.
(12) COMMITMENTS AND CONTINGENCIES
Valve Maintenance
On November 16, 1993, the PPUC staff issued an Emergency Order, subsequently
ratified by the PPUC (the "Emergency Order"), requiring PGE to survey its gas
distribution system to verify the location and spacing of its gas shut off
valves, to add or repair valves where needed and to establish programs for the
periodic inspection and maintenance of all such valves and the verification of
all gas service line information. On March 31, 1995, the PPUC adopted an Order
approving a plan submitted by PGE for complying with the Emergency Order. PGE
does not believe that compliance with the terms of such Order will have a
material adverse effect on its financial position or results of operations.
Environmental Matters
PGE, 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 1960, and several of the plant sites are no
longer owned by PGE. Pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), PGE 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. While this conclusion does not constitute a legal
prohibition against further regulatory action under CERCLA or other applicable
federal or state law, 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.
<PAGE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 68,237 $ 25,184 $ 12,119 $ 47,216
Operating income 9,905 2,271 400 7,958
Income (loss) from continuing
operations 5,669 (2,133) (4,159) 3,744
Loss with respect to
discontinued operations (3,704) - - (130)
Net income (loss) 1,965 (2,133) (4,159) 3,614
Earnings (loss) per share
of common stock: (a)
Continuing operations 1.00 (.37) (.72) .65
Discontinued operations (.65) - - (.02)
Earnings (loss) per share of
common stock (a) .35 (.37) (.72) .63
QUARTER ENDED
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
(Thousands of Dollars, Except Per Share Amounts)
Operating revenues $ 80,233 $ 26,568 $ 14,356 $ 46,835
Operating income 10,884 2,192 515 6,784
Income (loss) from continuing
operations 6,469 (2,342) (4,038) 2,112
Income from discontinued
operations 2,079 2,757 2,915 2,865
Net income (loss) 8,548 415 (1,123) 4,977
Earnings (loss) per share
of common stock:
Continuing operations 1.20 (.43) (.74) .38
Discontinued operations .38 .51 .53 .52
Net income (loss) before
premium on redemption of
subsidiary's preferred stock 1.58 .08 (.21) .90
Premium on redemption of
subsidiary's preferred stock - (.10) - (.08)
Earnings (loss) per share of
common stock 1.58 (.02) (.21) .82
<FN>
(a) The total of the earnings per share for the quarters does not equal the
earnings per share for the year, as shown elsewhere in the consolidated
financial statements and supplementary data of this report, as a result
of the Company's issuance of additional shares of common stock at
various dates during the year.
</FN>
</TABLE>
Because of the seasonal nature of PGE's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
<PAGE>
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
o Long-term debt. The fair value of both the Company's and PGE's long-term
debt has been estimated based on the quoted market price as of the
respective dates for the portion of such debt which is publicly traded and,
with respect to the portion of such debt which is not publicly traded, on
the estimated borrowing rate as of the respective dates for long-term debt
of comparable credit quality with similar terms and maturities.
o Preferred stock subject to mandatory redemption. The fair value of PGE's
preferred stock subject to mandatory redemption has been estimated based on
the market value as of the respective dates for preferred stock of
comparable credit quality with similar terms and maturities.
The carrying amounts and estimated fair values of the Company's and PGE's
financial instruments at December 31, 1995 and 1994, were as follows:
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
Long-term debt (including current
portion):
Company $ 49,906 $ 50,300 $ 49,880 $ 50,000
PGE 170,801 175,431 174,035 177,027
PERI 2,000 2,000 - -
Preferred stock of PGE subject to
mandatory redemption (including
current portion) 1,760 1,795 1,840 1,877
The Company believes that the regulatory treatment of any excess or
deficiency of fair value relative to the carrying amounts of these items, if
such items were settled at amounts approximating those above, would dictate that
these amounts be used to increase or reduce PGE's rates over a prescribed
amortization period. Accordingly, any settlement would not result in a material
impact on PGE's financial position or the results of operations of either the
Company or PGE.
<PAGE>
