-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, fOeI+96jk7JA0IgGHIfq9KeCCf2heN1C2wyYqVX4W9+22Y9HXyWETDGZ2rnc372A b3Cwp0+bVhEqYwIDO75nTw== 0000033015-94-000027.txt : 19940816 0000033015-94-000027.hdr.sgml : 19940816 ACCESSION NUMBER: 0000033015-94-000027 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENSERCH CORP CENTRAL INDEX KEY: 0000033015 STANDARD INDUSTRIAL CLASSIFICATION: 4923 IRS NUMBER: 750399066 STATE OF INCORPORATION: TX FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03183 FILM NUMBER: 94543976 BUSINESS ADDRESS: STREET 1: ENSERCH CTR STREET 2: 300 S ST PAUL CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2146518700 MAIL ADDRESS: STREET 1: 300 S ST PAUL ST CITY: DALLAS STATE: TX ZIP: 75201 FORMER COMPANY: FORMER CONFORMED NAME: LONE STAR GAS CO DATE OF NAME CHANGE: 19751015 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 30, 1994 Commission File No. 1-3183 ENSERCH CORPORATION Incorporated - State of Texas I.R.S. Identification No. 75-0399066 ENSERCH Center, 300 South St. Paul, Dallas, Texas 75201 Registrant's telephone number, including Area Code: 214-651-8700 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Number of shares of Common Stock of Registrant outstanding as of August 10, 1994: 66,894,502 PART I. FINANCIAL INFORMATION Item 1. Financial Statements
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) Three Months Ended Six Months Ended June 30 June 30 ------------------ ----------------- 1994 1993 1994 1993 ---- ---- ---- ---- (In thousands except per share amounts) Revenues Natural gas transmission and distribution . . . . . . . . $313,272 $299,461 $ 844,410 $797,841 Natural gas and oil exploration and production. . . . . . 44,473 48,982 95,210 90,016 Natural gas liquids processing. . . . . . . . . . . . . . 19,103 19,467 39,070 41,549 Power and other . . . . . . . . . . . . . . . . . . . . . 55,721 63,931 103,923 112,051 Less intercompany revenues. . . . . . . . . . . . . . . . (36,678) (37,614) (81,005) (53,681) -------- -------- ---------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . 395,891 394,227 1,001,608 987,776 -------- -------- ---------- -------- Costs and Expenses Gas purchase. . . . . . . . . . . . . . . . . . . . . . . 213,983 189,680 562,652 525,753 Operating expenses. . . . . . . . . . . . . . . . . . . . 126,131 122,028 248,846 241,698 Depreciation and amortization . . . . . . . . . . . . . . 33,606 35,020 67,859 64,968 Gross receipts and production taxes . . . . . . . . . . . 12,489 14,233 30,085 33,299 Payroll, ad valorem and other taxes . . . . . . . . . . . 9,601 6,435 19,243 15,500 -------- -------- -------- -------- Total . . . . . . . . . . . . . . . . . . . . . . . . 395,810 367,396 928,685 881,218 -------- -------- -------- -------- Operating Income . . . . . . . . . . . . . . . . . . . . . . 81 26,831 72,923 106,558 Other Income (Expense) - Net . . . . . . . . . . . . . . . . (766) (308) (2,206) (1,190) Interest Expense . . . . . . . . . . . . . . . . . . . . . . (16,393) (17,686) (33,206) (38,470) -------- -------- -------- -------- Income (Loss) Before Income Taxes. . . . . . . . . . . . . . (17,078) 8,837 37,511 66,898 Income Taxes (Benefit) . . . . . . . . . . . . . . . . . . . (5,850) 3,484 12,813 23,269 -------- -------- -------- -------- Income (Loss) from Continuing Operations . . . . . . . . . . (11,228) 5,353 24,698 43,629 Loss from Discontinued Operations. . . . . . . . . . . . . . (298) (364) -------- -------- -------- -------- Net Income (Loss). . . . . . . . . . . . . . . . . . . . . . (11,228) 5,055 24,698 43,265 Provision for Dividends on Preferred Stock . . . . . . . . . 2,772 3,166 5,616 6,350 -------- -------- -------- -------- Earnings (Loss) Applicable to Common Stock . . . . . . . . . $(14,000) $ 1,889 $ 19,082 $ 36,915 ======== ======== ======== ======== Per Share of Common Stock Income (loss) from continuing operations after provision for dividends on preferred stock. . . . . . . . . . . . $ (.21) $ .03 $ .29 $ .56 Discontinued operations . . . . . . . . . . . . . . . . . -------- -------- -------- -------- Earnings (loss) applicable to common stock. . . . . . . . $ (.21) $ .03 $ .29 $ .56 ======== ======== ======== ======== Cash dividends declared . . . . . . . . . . . . . . . . . $ .05 $ .05 $ .10 $ .10 ======== ======== ======== ======== Average Common and Dilutive Common Equivalent Shares Outstanding. . . . . . . . . . . . . . . 66,764 66,553 66,810 66,395 ======== ======== ======== ======== Operating Income (Loss) of Major Businesses (Excludes general corporate expenses) Natural gas transmission and distribution . . . . . . . $ (5,602) $ 6,125 $ 59,799 $ 80,307 Natural gas and oil exploration and production. . . . . 6,603 6,014 16,200 9,759 Natural gas liquids processing. . . . . . . . . . . . . (359) 1,552 (1,381) 4,893 Power and other . . . . . . . . . . . . . . . . . . . . 1,655 15,661 3,037 16,667 See accompanying Notes.
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED)
Six Months Ended June 30 ------------------------ 1994 1993 ---- ---- (In thousands) OPERATING ACTIVITIES Income from continuing operations . . . . . . . . . . . . . . . . . . . . . . . $ 24,698 $ 43,629 Adjustments to reconcile income to net cash flows Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 67,859 64,968 Deferred income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . 7,318 12,358 Recoveries of gas purchase contract settlements - net . . . . . . . . . . . . 22,800 13,286 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,927) 7,339 -------- -------- Net cash flows provided by continuing operating activities before changes in current operating assets and liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . 116,748 141,580 Cash effect of changes in current operating assets and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,023) (37,309) -------- -------- Net cash flows from operating activities. . . . . . . . . . . . . . . . . . 66,725 104,271 -------- -------- INVESTING ACTIVITIES Property, plant and equipment additions . . . . . . . . . . . . . . . . . . . . (123,596) (100,800) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,463) (40,380) Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86,373) (16,652) -------- -------- Net cash flows used for investing activities. . . . . . . . . . . . . . . . (224,432) (157,832) -------- -------- Net cash flows used for operating and investing activities. . . . . . . . . . . . . . . . . . . . . . . . . (157,707) (53,561) -------- -------- FINANCING ACTIVITIES Change in commercial paper and other short-term borrowings. . . . . . . . . . . 154,254 (5,906) Issuance of senior long-term debt . . . . . . . . . . . . . . . . . . . . . . . 149,117 200,000 Retirement of senior long-term debt . . . . . . . . . . . . . . . . . . . . . . (109,683) (209,723) Settlement of foreign currency swap . . . . . . . . . . . . . . . . . . . . . . 23,089 Issuance of Series F Preferred Stock. . . . . . . . . . . . . . . . . . . . . . 72,836 Retirement of Series D Preferred Stock. . . . . . . . . . . . . . . . . . . . . (75,000) Other financing activities - net. . . . . . . . . . . . . . . . . . . . . . . . (30,752) 29,138 Issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,909 5,759 Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12,211) (12,999) -------- -------- Net cash flows from financing activities. . . . . . . . . . . . . . . . . . 150,470 29,358 -------- -------- Net Decrease in Cash and Equivalents . . . . . . . . . . . . . . . . . . . . . . . (7,237) (24,203) Cash and Equivalents at Beginning of Period. . . . . . . . . . . . . . . . . . . . 19,203 48,553 -------- -------- Cash and Equivalents at End of Period. . . . . . . . . . . . . . . . . . . . . . . $ 11,966 $ 24,350 ======== ======== See accompanying Notes.
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES CONDENSED CONSOLIDATED BALANCE SHEETS (June 30, 1994 Unaudited)
June 30 December 31 1994 1993 ------- ----------- (In thousands) ASSETS Current Assets Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,966 $ 19,203 Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,558 224,947 Gas stored underground . . . . . . . . . . . . . . . . . . . . . . . . . . 109,629 109,615 Gas purchase settlements recoverable from customers. . . . . . . . . . . . 37,396 42,800 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135,883 111,002 ---------- ---------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . 476,432 507,567 ---------- ---------- Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69,878 86,208 ---------- ---------- Property, Plant and Equipment (full-cost method for gas and oil properties) . . . . . . . . . . . . . . . . . . . . 3,729,181 3,594,056 Less accumulated depreciation and amortization . . . . . . . . . . . . . . 1,529,295 1,476,003 ---------- ---------- Net property, plant and equipment. . . . . . . . . . . . . . . . . . . . 2,199,886 2,118,053 ---------- ---------- Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,165 48,433 ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,790,361 $2,760,261 ========== ========== LIABILITIES Current Liabilities Commercial paper and other short-term borrowings . . . . . . . . . . . . . $ 185,754 $ 31,500 Current maturities of senior long-term debt. . . . . . . . . . . . . . . . 10,600 10,600 Accounts payable and other accrued liabilities . . . . . . . . . . . . . . 353,905 442,395 Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,960 34,021 Litigation judgment payable. . . . . . . . . . . . . . . . . . . . . . . . 62,035 Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,578 122,534 ---------- ---------- Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . 704,797 703,085 ---------- ---------- Senior Long-term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 669,519 628,227 ---------- ---------- Convertible Subordinated Debentures. . . . . . . . . . . . . . . . . . . . . . 90,750 90,750 ---------- ---------- Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323,747 321,364 ---------- ---------- Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167,568 195,117 ---------- ---------- Shareholders' Equity Adjustable rate preferred stock. . . . . . . . . . . . . . . . . . . . . . 175,000 175,000 ---------- ---------- Common shareholders' equity Common stock (100,000 shares authorized; 66,861 and 66,656 shares outstanding) . . . . . . . . . . . . . . . . 297,533 296,619 Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339,217 339,115 Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,457 10,984 Unamortized restricted stock compensation. . . . . . . . . . . . . . . . (1,227) ---------- ---------- Common shareholders' equity. . . . . . . . . . . . . . . . . . . . . . 658,980 646,718 ---------- ---------- Shareholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 833,980 821,718 ---------- ---------- Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,790,361 $2,760,261 ========== ========== See accompanying Notes.
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES Notes to Financial Statements 1. Prior-period results have been restated to reflect the engineering and construction business segment as a discontinued operation. 2. Earnings per share applicable to common stock are based on the weighted average number of common shares, including common equivalent shares when dilutive, outstanding during the periods. Common equivalent shares consist of those shares issuable upon the assumed exercise of stock options under the treasury stock method. The 6 3/8% Convertible Subordinated Debentures were not common stock equivalents. Fully diluted earnings per share are not presented since the assumed exercise of stock options and conversion of debentures would not be dilutive. 3. In March 1994, the Corporation filed a shelf registration statement with the Securities and Exchange Commission for the sale from time to time of up to $450 million of its securities, which can be senior or subordinated debt securities, equity securities or preferred shares of a special purpose subsidiary. In April 1994, the Corporation sold three million Depositary Preferred Shares, Series F, representing $75 million of Adjustable Rate Preferred Stock, Series F. Each depositary share (stated value $25 per share) represents 1/40th ownership in one share of the Corporations' Adjustable Rate Preferred Stock, Series F. Dividend rates are determined quarterly, in advance, based on the Applicable Rate (being the highest of the three- month U. S. Treasury bill rate, the U. S. Treasury 10-year constant maturity rate and the U. S. Treasury 30-year constant maturity rate) multiplied by 87%, such dividend rate will not be less than 4.50% nor greater than 10.50% per annum. Net proceeds were used to repay a maturing bank loan of $29.3 million with an interest rate of 8.7% and to reduce commercial paper borrowings. 4. In the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of the results of operations for the interim periods included herein have been made. INDEPENDENT ACCOUNTANTS' REPORT ENSERCH Corporation: We have reviewed the accompanying condensed consolidated balance sheet of ENSERCH Corporation and subsidiary companies as of June 30, 1994, and the related condensed statements of consolidated income for the three months and six months ended June 30, 1994 and 1993, and the condensed statements of consolidated cash flows for the six months ended June 30, 1994 and 1993. These financial statements are the responsibility of the Corporation's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical review procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to such condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of ENSERCH Corporation and subsidiary companies as of December 31, 1993, and the related statements of consolidated income, cash flows and common shareholders' equity for the year then ended (not presented herein); and in our report dated February 7, 1994, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1993, is fairly stated in all material respects, in relation to the consolidated balance sheet from which it has been derived. DELOITTE & TOUCHE Dallas, Texas July 29, 1994 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS CONSOLIDATED RESULTS ENSERCH's second-quarter results declined to a loss of $.21 per share, versus earnings of $.03 per share in the year-ago period, which included a $.14-per-share gain from the sale of the Corporation's position in a power project. Less heating weather and lower oil and natural gas liquids prices contributed to the poorer results. The loss from continuing operations was $11 million versus income from continuing operations of $5.4 million for the 1993 second quarter. Operating income for the second quarter of 1994 was $.1 million, compared with operating income of $27 million for the like period a year ago. Second-quarter revenues were $396 million, virtually unchanged from the year-earlier period. For the first six months of 1994, earnings applicable to common stock were $.29 per share, compared with $.56 for the same period in 1993. Last year's six-month results benefited from the sale of the Corporation's position in the power project mentioned earlier, higher oil and natural gas liquids prices and more favorable heating weather. Income from continuing operations was $25 million versus $44 million for the year-ago period. Operating income for the first six months of 1994 was $73 million, compared with $107 million for the first six months of 1993. Revenues were $1.0 billion, virtually unchanged from the year-earlier period. Interest expense for the first six months of 1994 of $33 million was 14% less than the year-earlier period as a result of reduced debt and the restructuring of long-term debt at lower rates. The provision for preferred dividends of $5.6 million was 12% lower than the same year-ago period. NATURAL GAS TRANSMISSION AND DISTRIBUTION Transmission and Distribution operations had an operating loss of $5.6 million for the second quarter of 1994, compared with operating income of $6.1 million for the same period of 1993. Higher-margin residential and commercial gas sales volumes declined 11% from the year-earlier period that benefited from an unusually cool April. Overall, system throughput improved, increasing 19% to 173 billion cubic feet (Bcf). Gas transportation volumes rose about 18% above the 1993 second-quarter level. Operating income for the first six months of 1994 was $60 million versus $80 million for the same period last year. Less heating weather caused residential and commercial gas sales volumes to decline 6% from the year- earlier period. System throughput totaled 379 Bcf, an increase of 23% from the first six months of 1993. Gas transportation volumes increased 29% from the year ago period. NATURAL GAS AND OIL EXPLORATION AND PRODUCTION Operating income from Natural Gas and Oil Exploration and Production operations was $6.6 million, a 10% improvement from the year-earlier period, reflecting lower operating expenses versus a year ago. Natural-gas sales volumes were 17.0 Bcf, compared with 17.8 Bcf for the year-earlier quarter, with the average sales price of $2.11 per thousand cubic feet (Mcf) up 2%. Oil sales volumes of 522 thousand barrels were slightly lower than the year-earlier period, and the average price per barrel of oil declined to $15.58 from $18.36, a 15% decrease. Average production cost per million British thermal units (MMBtu) for the quarter decreased to $.50 in 1994 from $.54 in 1993 due to lower operating expenses. The overall rate of amortization for the second quarter of 1994 was $1.01 per MMBtu produced, up from $.97 for the year-earlier period. For the first six months of 1994, operating income for Exploration and Production operations was $16 million, compared with $10 million for the same period a year ago, reflecting significantly improved prices and sales volumes for natural gas. The average natural-gas sales price of $2.21 per Mcf rose 10% from the prior-year period, and sales volumes increased 8%. At June 30, 1994, the discounted value of ENSERCH's gas and oil reserves, as determined by the method prescribed by the Securities and Exchange Commission, exceeded the net capitalized cost of gas and oil properties by approximately $20 million, based on average prices and contracts in effect in June 1994. Product prices are subject to seasonal and other fluctuations. NATURAL GAS LIQUIDS PROCESSING Natural Gas Liquids (NGL) Processing operations had an operating loss of $.4 million for the second quarter versus operating income of $1.6 million for the prior-year period. Margins continued to be weak, as prices remained strong for natural gas, the feedstock used in NGL production, and NGL prices continued to be depressed. Although NGL prices are showing signs of strengthening due to more stable oil prices and a modest increase in demand, prices are increasing at a slower rate than oil. NGL processing sales volumes were up slightly at 1.3 million barrels, with the average sales price per barrel down 17% from the prior year to $11.26. During the first half of 1994, NGL Processing operations reported an operating loss of $1.4 million versus operating income of $4.9 million for the 1993 period, with NGL sales volumes up slightly but the average sales price per barrel down 18%. POWER AND OTHER ENSERCH's power and other activities, comprised of Enserch Development Corporation, Lone Star Energy Company and Enserch Environmental Corporation, had second-quarter operating income of $1.7 million, compared with $16 million in the same period a year ago. The 1993 quarter included the $15 million gain from the previously mentioned sale of ENSERCH's position in a power project. A memorandum was recently signed with Foster Wheeler Corporation indicating agreement to sell Enserch Environmental Corporation for cash, subject to due diligence review and antitrust clearance. Enserch Environmental was retained when the principal operating assets of Ebasco were sold in late 1993. The memorandum of agreement provides for a purchase price of approximately $90-95 million, with closing anticipated in the fourth quarter. CASH FLOWS AND FINANCING ACTIVITIES Net cash flows from operating activities for the first six months of 1994 were $67 million versus $104 million for the same period of 1993. There was a $34 million decrease in net cash flows from operations before cash flow effects of gas-purchase contract settlements and changes in current operating assets and liabilities. The $10 million improvement in net recoveries of gas- purchase contract settlements over the prior period virtually offset an increase in operating working capital requirements. Investing activities required net cash flows of $224 million. The $86 million requirement for discontinued operations includes $31 million reimbursed to Enserch Environmental Corporation for receivables associated with the December sale of receivables and $22 million of December collections of sold receivables remitted to the bank in 1994. Additionally, payment of accrued expenses of the sale, accrued taxes and other retained obligations were part of the discontinued operations requirement. Cash from the sale of Enserch Environmental and collection of the remaining assets retained from the sale of Ebasco will be used to reduce debt. Property additions of $124 million were $23 million higher than the 1993 period, with increases of $19 million for transmission and distribution and $3 million for exploration and production. Planned property, plant and equipment additions for 1994 total $238 million, including $116 million designated for transmission and distribution, $116 million for exploration and production, and $6 million for other requirements. The planned expenditures are expected to be funded from internal cash flow and external financings as required. In addition, construction of the offshore platform and related facilities associated with the Garden Banks Block 388 project in the Gulf of Mexico is being financed through an operating lease arrangement. The net cash of $158 million required by operating and investing activities for the first half of 1994 was financed principally by commercial paper borrowings. In February 1994, the Corporation issued $150 million of 6 3/8% Notes due 2004 in a public offering. The net proceeds of this issue were used in March 1994 for the early redemption, including call premiums of $1.4 million, of all of the $74 million principal amount of outstanding sinking fund debentures and to fully redeem the $75 million of Series D Adjustable Rate Preferred Stock at par. In April 1994, the Corporation sold $75 million of Adjustable Rate Preferred Stock, Series F, in a public offering. The Series F Preferred Stock has a minimum per annum dividend rate of 4.5%, a maximum rate of 10.5% and is reset quarterly. Net proceeds from the sale were used to repay $29 million of maturing senior long-term debt, with the remainder used to reduce commercial paper borrowings. Senior long-term and convertible debt, including current maturities, as a percentage of total capitalization was 48.0% at June 30, 1994, compared with 47.0% at yearend 1993. At June 30, 1994, the current ratio was .68, compared with .72 at December 31, 1993. At June 30, 1994, the Corporation had short- and interim-term bank lines totaling $650 million, which were all unused. ENSERCH recently announced that its subsidiary serving as the managing general partner of Enserch Exploration Partners, Ltd. intends to convert the partnership to a publicly traded corporation. ENSERCH owns 99.2% of the outstanding units of the partnership, which conducts almost all of the natural gas and oil exploration and production activities of ENSERCH. ENSERCH intends to increase the level of minority ownership in the new corporation enabling the public market to value directly and more effectively the gas and oil assets currently owned by the partnership. ENSERCH believes the corporate structure will provide a greater opportunity for asset growth through acquisition of proved gas and oil reserves and development of new properties, because the conversion will facilitate additional shares being placed in the public market, either through acquisitions or public offerings. Additional details about the restructuring will be announced at the time the appropriate documents are filed with the Securities and Exchange Commission. GAS-PURCHASE CONTRACTS Assuming normal weather conditions, it is expected that normal gas purchases will substantially satisfy purchase obligations for the year 1994 and thereafter. At June 30, 1994, there were a total of four unsettled gas- purchase contract claims asserted by suppliers, with three of those claims totaling $29 million. The fourth claim was filed in 1993 for $70 million and primarily relates to asserted obligations for purchases from the early to mid- 80s. Following recent discovery proceedings of plaintiff's expert witnesses on Lone Star Gas Company's alleged minimum purchase obligation, plaintiff's claim, under alternate damage theories, now appears to be in an asserted range of from approximately $75 million to $235 million. (See Part II, Item 1, Legal Proceedings.) At June 30, 1994, there was an unrecovered balance of gas-purchase contract settlements of $89 million, including $49 million that represented prepayments for gas expected to be recouped under contracts covering future gas purchases. The remaining $40 million represented amounts expected to be recovered from customers under the existing gas cost recovery provisions. Lone Star expects to recoup or recover the remaining balances of gas settlement payments made to date, as well as future payments to be made in settlement of remaining claims. A summary of transactions related to unrecovered gas settlement payments during the first six months of 1994 is as follows:
Recoupable Recoverable Prepayments Settlements Total ----------- ----------- ----- (In millions) December 31, 1993 $ 63 $ 48 $ 111 Gas-purchase contract settlements 1 1 Recouped or recovered (7) (16) (23) Other (7) 7 ----- ----- ----- June 30, 1994 $ 49 $ 40 $ 89 ===== ===== =====
DRILLING PROGRAM The Garden Banks Block 388 project in the Gulf of Mexico remains on schedule, with initial production anticipated in mid-1995. Completion of three predrilled wells (two oil and one gas condensate) will commence as soon as the floating facility is on location. These operations should be completed by the end of 1995, followed by the drilling of new development wells. Initial daily oil production rates from each predrilled oil well should be between 2,500 and 5,000 barrels of oil. Total peak daily production is expected to be 40 thousand barrels of oil and 60 million cubic feet of gas. In July, the tow out and placement of the subsea drilling and production template was completed. Also in July, ENSERCH completed an agreement with Mobil Corporation under which Mobil has conducted an additional three- dimensional seismic survey over the unit and is participating in an exploratory well currently drilling on Garden Banks Block 387, which was spudded in August. Mobil has an option to acquire, for additional consideration, a 40% interest in the Garden Banks unit and in the production system. ENSERCH, which currently owns 100% of the project, will remain the project operator. Also in the Gulf, a successful delineation well on Green Canyon Block 254 offshore Louisiana was drilled, which encountered more than 400 feet of net oil and gas pay below 12,000 feet. The delineation well is an appraisal well to a discovery drilled in 1991 that encountered multiple sands with a combined thickness of more than 300 feet of net oil pay. ENSERCH has a 25% working interest in prior work in the project and assumed a 100% working interest and operation of the sidetrack well. ENSERCH CORPORATION AND SUBSIDIARY COMPANIES Natural Gas Transmission and Distribution Operating Data (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 1994 1993 1994 1993 ---- ---- ---- ---- Operating Income (Loss)(in millions) . . . . . . . . . . . . . . $ (5.6) $ 6.1 $ 59.8 $ 80.3 ====== ====== ====== ====== Natural Gas Sales Revenues by Customer (in millions): Residential & commercial. . . . . . . . . . . . . . . . . . . $119.1 $126.9 $440.8 $472.0 Industrial & electric generation. . . . . . . . . . . . . . . 68.1 80.1 151.7 160.8 Pipeline & other. . . . . . . . . . . . . . . . . . . . . . . 108.8 75.2 216.4 131.3 ------ ------ ------ ------ Total gas sales revenues . . . . . . . . . . . . . . . . $296.0 $282.2 $808.9 $764.1 ====== ====== ====== ====== Natural Gas Revenues (in millions): Lone Star Gas Company sales . . . . . . . . . . . . . . . . . $136.2 $150.8 $492.9 $534.2 Enserch Gas Company sales . . . . . . . . . . . . . . . . . . 159.8 131.4 316.0 229.9 ------ ------ ------ ------ Total gas sales revenues . . . . . . . . . . . . . . . . 296.0 282.2 808.9 764.1 Gas transportation. . . . . . . . . . . . . . . . . . . . . . 13.1 12.7 27.2 24.6 ------ ------ ------ ------ Total natural gas revenues . . . . . . . . . . . . . . . 309.1 294.9 836.1 788.7 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 4.6 8.3 9.1 ------ ------ ------ ------ Total revenues . . . . . . . . . . . . . . . . . . . . . $313.3 $299.5 $844.4 $797.8 ====== ====== ====== ====== Natural Gas Sales Volumes by Customer (Bcf): Residential & commercial. . . . . . . . . . . . . . . . . . . 18.3 20.4 76.7 81.4 Industrial & electric generation. . . . . . . . . . . . . . . 29.3 32.2 59.9 64.4 Pipeline & other. . . . . . . . . . . . . . . . . . . . . . . 55.2 34.0 104.6 61.8 ------ ------ ------ ------ Total gas sales volumes. . . . . . . . . . . . . . . . . 102.8 86.6 241.2 207.6 ====== ====== ====== ====== Natural Gas Volumes (Bcf): Lone Star Gas Company sales . . . . . . . . . . . . . . . . . 22.2 25.8 89.2 97.0 Enserch Gas Company sales . . . . . . . . . . . . . . . . . . 80.6 60.8 152.0 110.6 ------ ------ ------ ------ Total gas sales volumes. . . . . . . . . . . . . . . . . 102.8 86.6 241.2 207.6 ====== ====== ====== ====== Gas transportation: For associated. . . . . . . . . . . . . . . . . . . . . . . 38.5 34.0 76.6 66.1 For others (nonassociated). . . . . . . . . . . . . . . . . 69.9 58.2 137.6 99.3 ------ ------ ------ ------ Total. . . . . . . . . . . . . . . . . . . . . . . . . . 108.4 92.2 214.2 165.4 ====== ====== ====== ====== Lone Star system throughput . . . . . . . . . . . . . . . . . 132.6 119.8 307.1 267.2 Off-system sales (1). . . . . . . . . . . . . . . . . . . . . 40.1 25.0 71.7 39.8 ------ ------ ------ ------ Total throughput (2) . . . . . . . . . . . . . . . . . . 172.7 144.8 378.8 307.0 ====== ====== ====== ====== Natural Gas Sales Revenues (per Mcf): Lone Star Gas Company . . . . . . . . . . . . . . . . . . . . $ 6.15 $ 5.84 $ 5.53 $ 5.50 Enserch Gas Company . . . . . . . . . . . . . . . . . . . . . 1.98 2.16 2.08 2.08 Natural Gas Purchase Cost (per Mcf): Lone Star Gas Company . . . . . . . . . . . . . . . . . . . . $ 3.45 $ 3.54 $ 3.29 $ 3.42 Enserch Gas Company . . . . . . . . . . . . . . . . . . . . . 1.92 2.05 2.02 1.96 Gas Transportation Rate (per Mcf). . . . . . . . . . . . . . . . $ .12 $ .14 $ .13 $ .15 (1) Represents off-system sales never entering Lone Star's pipeline system. (2) Total throughput is the sum of gas sales volumes and gas transportation volumes for others. Gas transported by Lone Star for Enserch Gas Company is reported in both sales and associated transportation.
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES Natural Gas and Oil Exploration and Production Operating Data (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 1994 1993 1994 1993 ---- ---- ---- ---- Operating Income (in millions) . . . . . . . . . . . . . . . . . $ 6.6 $ 6.0 $ 16.2 $ 9.8 ====== ====== ====== ====== Revenues (in millions) Natural gas (1) . . . . . . . . . . . . . . . . . . . . . . . $ 35.9 $ 36.8 $ 78.4 $ 66.1 Oil and condensate. . . . . . . . . . . . . . . . . . . . . . 8.1 9.9 15.7 19.9 Natural gas liquids . . . . . . . . . . . . . . . . . . . . . .3 1.5 .8 2.7 Other revenues - net. . . . . . . . . . . . . . . . . . . . . .2 .8 .3 1.3 ------ ------ ------ ------ Total revenues . . . . . . . . . . . . . . . . . . . . . . $ 44.5 $ 49.0 $ 95.2 $ 90.0 ====== ====== ====== ====== Sales Volumes Natural gas (MMcf) (1). . . . . . . . . . . . . . . . . . . . 17,039 17,798 35,409 32,849 Oil and condensate (MBbl) . . . . . . . . . . . . . . . . . . 522 539 1,036 1,077 Average Sales Price Natural gas (per Mcf) . . . . . . . . . . . . . . . . . . . . $ 2.11 $ 2.07 $ 2.21 $ 2.01 Oil and condensate (per Bbl) . . . . . . . . . . . . . . . . 15.58 18.36 15.20 18.47 Net Wells Drilled . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 26 35 42 Productive. . . . . . . . . . . . . . . . . . . . . . . . . . 13 22 21 36 Data in Equivalent Energy Content (MMBtu) (2) Average sales price . . . . . . . . . . . . . . . . . . . . . $ 2.12 $ 2.17 $ 2.19 $ 2.14 Average production costs. . . . . . . . . . . . . . . . . . . .50 .54 .52 .57 Amortization rate . . . . . . . . . . . . . . . . . . . . . . 1.01 .97 1.00 .97 (1) Excludes products purchased for resale. Includes affiliated revenues and volumes. (2) For the purpose of providing a common unit of measure, natural gas, oil and natural gas liquids are converted to an approximate equivalent unit on the basis of relative energy content: one Mcf of natural gas equals 1.05 MMBtu, one barrel of oil equals 5.6 MMBtu and one barrel of natural gas liquids equals 4.2 MMBtu.
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES Natural Gas Liquids Processing Operating Data (Unaudited)
Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 1994 1993 1994 1993 ---- ---- ---- ---- Operating Income (Loss) (in millions). . . . . . . . . . . . . . $ (.4) $ 1.6 $ (1.4) $ 4.9 ====== ====== ====== ====== Revenues (in millions) Natural gas liquids (1) . . . . . . . . . . . . . . . . . . . $ 14.8 $ 17.6 $ 30.8 $ 37.3 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 1.9 8.3 4.2 ------ ------ ------ ------ Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.1 $ 19.5 $ 39.1 $ 41.5 ====== ====== ====== ====== Natural Gas Liquids Sales volumes (MBbl)(1) . . . . . . . . . . . . . . . . . . . 1,318 1,305 2,810 2,771 Average sales price (per Bbl) . . . . . . . . . . . . . . . . $11.26 $13.50 $10.97 $13.46 (1) Excludes products purchased for resale.
PART II. OTHER INFORMATION Item 1. Legal Proceedings On June 25, 1993, a lawsuit was filed against the utility division of the Corporation in the 4th Judicial District Court of Rusk County, Texas. The plaintiff claims that the utility division failed to make certain production and minimum purchase payments under a gas-purchase contract. The plaintiff contends that it was fraudulently induced to enter into a gas-purchase contract which the utility division never intended to perform; that the plaintiff was fraudulently induced and coerced into releasing the utility division from its obligation to make minimum purchase payments; and that the contract was breached. The plaintiff initially sought actual damages in excess of $100 million in addition to punitive damages equal to the savings produced from a gas price reduction program implemented by the utility in 1982 or equal to the value of gas supply in excess of its needs which were added pursuant to a program established in 1978 to increase gas supply. Following recent discovery proceedings of plaintiff's expert witnesses on the utility division's alleged minimum purchase obligation, plaintiff's claim, under alternate damage theories, now appears to be in an asserted range of from approximately $75 million to approximately $235 million. Management believes that the Corporation has meritorious defenses to the claims made. In the opinion of management, the Corporation will incur no liability from this claim that would be considered material for financial reporting purposes. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. 15 -Letter of Deloitte & Touche dated August 11, 1994, regarding unaudited interim financial statements. (b) Reports on Form 8-K No reports on Form 8-K were filed for the three months ended June 30, 1994. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENSERCH Corporation (Registrant) Date: August 11, 1994 By /s/ S. R. Singer --------------------------- S. R. Singer, Senior Vice President, Finance and Corporate Development, Chief Financial Officer Date: August 11, 1994 By /s/ J. W. Pinkerton --------------------------- J. W. Pinkerton, Vice President and Controller, Chief Accounting Officer EX-15 2 LETTER RE UNAUDITED INTERIM FINANCIAL STATEMENTS EXHIBIT (15) ENSERCH Corporation: We have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited interim condensed consolidated financial information of ENSERCH Corporation and subsidiary companies for the periods ended June 30, 1994 and 1993, as indicated in our report dated July 29, 1994; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, is being used in Registration Statements No. 2-59259, No. 33-40589, No. 33-47911 and No. 2-77572 on Form S-8, and in Registration Statements No. 33-15623 and No. 33-52525 on Form S-3. We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. DELOITTE & TOUCHE Dallas, Texas August 11, 1994 -----END PRIVACY-ENHANCED MESSAGE-----