<PAGE>
UNITED STATES
SECURITIES AND EXCAHNGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
______________TO_______________
Commission File No. 1-12108
LONE STAR ENERGY PLANT OPERATIONS, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2421863
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
1817 Wood Street, Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
214-573-3915
(Registrant's telephone number, including Area Code)
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
May 12, 1997: 10.
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<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
LONE STAR ENERGY PLANT OPERATIONS, INC.
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (UNAUDITED)
Three Months Ended March 31,
------------------------------
1997 1996
------- --------
(In thousands except
per share data)
<S> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,603 $ 2,359
------- -------
Costs and Expenses
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 1,605 1,512
Maintenance expenses . . . . . . . . . . . . . . . . . . . . . . . 666 534
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3
Payroll, ad valorem and other taxes. . . . . . . . . . . . . . . . 116 95
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,391 2,144
------- -------
Operating Income. . . . . . . . . . . . . . . . . . . . . . . . . . . 212 215
Other Income (Expense). . . . . . . . . . . . . . . . . . . . . . . . (4) 90
Interest Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . - (90)
------- -------
Income before Income Taxes. . . . . . . . . . . . . . . . . . . . . . 208 215
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 94
------- -------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135 121
Retained Earnings, Beginning of Period. . . . . . . . . . . . . . . . 4,020 3,087
------- -------
Retained Earnings, End of Period. . . . . . . . . . . . . . . . . . . $ 4,155 $ 3,208
======= =======
Pro Forma Information
Net Income Per Share . . . . . . . . . . . . . . . . . . . . . . . $ .17 $ .16
======= =======
Average Common Shares Outstanding. . . . . . . . . . . . . . . . . 778 778
======= =======
<FN>
See accompanying Notes.
</FN>
</TABLE>
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<CAPTION>
LONE STAR ENERGY PLANT OPERATIONS, INC.
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended March 31,
-----------------------------
1997 1996
------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 135 $ 121
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . 4 3
Deferred receivable. . . . . . . . . . . . . . . . . . . . . (1,710)
Changes in current operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . 799 2,239
Other current assets. . . . . . . . . . . . . . . . . . . (23) (61)
Accounts payable. . . . . . . . . . . . . . . . . . . . . 113 (1,230)
Deferred payable to ENSERCH . . . . . . . . . . . . . . . - (515)
Other current liabilities . . . . . . . . . . . . . . . . (401) 191
------ ------
Net Cash Flows from (used for) Operating Activities. . 627 (962)
------ ------
INVESTING ACTIVITIES. . . . . . . . . . . . . . . . . . . . . .
------ ------
FINANCING ACTIVITIES
Increase in non-current portion of deferred
payable to ENSERCH . . . . . . . . . . . . . . . . . . . . 1,710
Increase in working capital advances receivable
from ENSERCH. . . . . . . . . . . . . . . . . . . . . . . (534) (749)
------ ------
Net Cash Flows from (used for) Financing Activities. . (534) 961
------ ------
Net Increase (Decrease) in Cash . . . . . . . . . . . . . . . . 93 (1)
Cash at Beginning of Period . . . . . . . . . . . . . . . . . . 18 19
------ ------
Cash at End of Period . . . . . . . . . . . . . . . . . . . . . $ 111 $ 18
====== ======
<FN>
See accompanying Notes.
</FN>
</TABLE>
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<TABLE>
<CAPTION>
LONE STAR ENERGY PLANT OPERATIONS, INC.
CONDENSED BALANCE SHEETS
(March 31, 1997 Unaudited)
March 31, December 31,
1997 1996
-------- ----------
<S> (In thousands, except shares)
ASSETS
Current Assets <C> <C>
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 111 $ 18
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . 3,473 4,272
Advances receivable from ENSERCH . . . . . . . . . . . . . . . . . . . 1,453 919
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 85
------- -------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . 5,145 5,294
------- -------
Property, Plant and Equipment, net of accumulated depreciation of
$61 and $57. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 70
------- -------
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 20
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,231 $ 5,384
======= =======
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 217 $ 104
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 858 1,259
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 1,075 1,363
------- -------
Common Shareholder's Equity
Common stock, $100 par value; authorized 1,000 shares,
issued 10 shares . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . 4,155 4,020
------- -------
Common shareholder's equity . . . . . . . . . . . . . . . . . . . . 4,156 4,021
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,231 $ 5,384
======= =======
<FN>
See accompanying Notes.
</FN>
</TABLE>
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LONE STAR ENERGY PLANT OPERATIONS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Lone Star Energy Plant Operations, Inc. ("LSEPO") was established as
a wholly-owned subsidiary of Lone Star Energy Company ("LSEC"), a
wholly-owned subsidiary of ENSERCH Corporation ("ENSERCH"). On
April 23, 1997, LSEC merged with ENSERCH, and LSEPO thus became a
directly-owned subsidiary of ENSERCH. In connection with the
pending merger of ENSERCH with TUC Holding Company (the "ENSERCH/TUC
Merger"), ENSERCH plans to merge the operations of LSEPO and Enserch
Exploration, Inc. ("EEX"), a company approximately 83% owned by ENSERCH.
Immediately prior to the consummation of the ENSERCH/TUC Merger, and
as a condition thereof, EEX will be merged into LSEPO
(the "EEX/LSEPO Merger"), LSEPO will change its name to "Enserch
Exploration, Inc." ("New EEX"), shares of EEX will automatically be
converted into shares of New EEX on a one-for-one basis in a tax-free
transaction, and ENSERCH will distribute to its shareholders, on a pro
rata basis, all of the shares of New EEX common stock it owns
("Distribution"). In the EEX/LSEPO Merger, ENSERCH will receive
approximately 778,000 shares of New EEX for the value of LSEPO.
The ENSERCH/TUC Merger is subject to certain conditions which include the
approval by the Securities and Exchange Commission (SEC) and receipt by
ENSERCH of a favorable tax ruling from the Internal Revenue Service (IRS)
to the effect that its distribution of EEX stock will be a tax-free
transaction. ENSERCH received this IRS ruling in February 1997. ENSERCH
has stated that it recently became aware of an inadvertent misstatement
of fact it believes is immaterial in its filing with the IRS and has
received an opinion from outside counsel that it will still be able to
rely on the ruling. ENSERCH and TUC have stated that while they do not
believe the additional facts would change the IRS's ruling, the situation
is being reviewed by the parties and further communication with the IRS
may ensue. All other approvals have been received, except for approval
by the SEC under the Public Utility Holding Company Act of 1935 where the
approval process is proceeding.
2. In the EEX/LSEPO Merger, each outstanding share of EEX Common Stock
will be converted into one share of New EEX Common Stock and the
outstanding shares of LSEPO will be converted into a number of
shares of New EEX Common Stock determined by dividing $7.0 million
by the average of the closing sales prices of EEX Common Stock on
the 15 trading days preceding the fifth trading day prior to the
effective time of the EEX/LSEPO Merger. A market price of EEX
shares of $9.00 was assumed to determine the pro forma converted
shares outstanding and to compute pro forma earnings per share.
3. In the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the
results of operations for the interim periods included herein have
been made.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Overview
In connection with the pending merger of ENSERCH Corporation ("ENSERCH")
with TUC Holding Company (the "ENSERCH/TUC Merger"), ENSERCH plans to merge
the operations of Lone Star Energy Plant Operations, Inc. ("LSEPO") and
Enserch Exploration, Inc. ("EEX"), a company approximately 83% owned by
ENSERCH. Immediately prior to the consummation of the ENSERCH/TUC Merger,
and as a condition thereof, EEX will be merged into LSEPO (the "EEX/LSEPO
Merger"), LSEPO will change its name to "Enserch Exploration, Inc."
("New EEX"), shares of EEX will automatically be converted into shares of
New EEX on a one-for-one basis in a tax-free transaction, and ENSERCH will
distribute to its shareholders, on a pro rata basis, all of the shares of
New EEX common stock it owns ("Distribution"). In the EEX/LSEPO Merger,
ENSERCH will receive approximately 778,000 shares of New EEX for the
value of LSEPO.
The ENSERCH/TUC merger is subject to certain conditions which include the
approval by the Securities and Exchange Commission (SEC) and receipt by
ENSERCH of a favorable tax ruling from the Internal Revenue Service (IRS)
to the effect that its distribution of EEX stock will be a tax-free
transaction. ENSERCH received this IRS ruling in February 1997. ENSERCH
has stated that it recently became aware of an inadvertent misstatement
of fact it believes is immaterial in its filing with the IRS and has
received an opinion from outside counsel that it will still be able to
rely on the ruling. ENSERCH and TUC have stated that while they do not
believe the additional facts would change the IRS's ruling, the situation
is being reviewed by the parties and further communication with the IRS
may ensue. All other approvals have been received, except for approval
by the SEC under the Public Utility Holding Company Act of 1935 where the
approval process is proceeding.
Results of Operations
Revenues include reimbursement of expenses incurred on behalf of
Encogen One Partners Ltd. ("Encogen One") and Encogen Four Partners, L.P.
LSEPO had net income of $.1 million for the three months ended March 31,
1997 and for the same period in 1996. Operating income for the first quarter
of 1997 was $.2 million, the same as for the first quarter of 1996.
Other income in the first quarter of 1996 consisted of interest received
from Encogen One. In 1995, LSEPO incurred extraordinary reimbursable
maintenance expenses for Encogen One, which deferred reimbursement of
these expenses to LSEPO, as allowed under the terms of the operating and
maintenance agreement. ENSERCH financed this temporary working capital
requirement for LSEPO, and interest equal to the interest earned by LSEPO
was paid to ENSERCH. Encogen One repaid the balance of deferred
reimbursable expenses during 1996.
Liquidity and Financial Resources
LSEPO has funded its activities through cash provided from operations and
through advances from ENSERCH. ENSERCH advances cash to LSEPO to meet its
working capital needs and LSEPO remits any excess cash to ENSERCH. Net cash
provided by operating activities in the first three months of 1997 totaled
$.6 million, compared with cash required of $1.0 million for the same period
in 1996.
At March 31, 1997, LSEPO had total assets of $5.2 million and net assets
of $4.2 million, including working capital of $4.1 million. Effective with
the EEX/LSEPO Merger, ENSERCH will make a capital contribution to LSEPO, or
LSEPO will make a distribution to ENSERCH, of such amount needed to cause
LSEPO's working capital to be $3.5 million. Following the EEX/LSEPO Merger,
ENSERCH will no longer fund LSEPO's operations.
-5-
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
No reports were filed on Form 8-K for the
three months ended March 31, 1997.
-6-
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersiged thereunto duly authorized.
LONE STAR ENERGY PLANT OPERATIONS, INC.
(Registrant)
Date: May 12, 1997 By /s/ P. J. Banczak
------------------------------------
P. J. Banczak,
Vice President
Date: May 12, 1997 By /s/ J.W. Pinkerton
-----------------------------------
J. W. Pinkerton,
Vice President and Controller
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001023060
<NAME> LONE STAR ENERGY PLANT OPERATIONS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 111
<SECURITIES> 0
<RECEIVABLES> 3,473
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,145
<PP&E> 127
<DEPRECIATION> 61
<TOTAL-ASSETS> 5,231
<CURRENT-LIABILITIES> 1,075
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 4,155
<TOTAL-LIABILITY-AND-EQUITY> 5,231
<SALES> 0
<TOTAL-REVENUES> 2,603
<CGS> 0
<TOTAL-COSTS> 2,391
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 208
<INCOME-TAX> 73
<INCOME-CONTINUING> 135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
