<PAGE>
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 September 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
November 11, 1994: 66,931,627
<PAGE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands except per share amounts)
<S> <C> <C> <C> <C>
Revenues
Natural gas transmission and distribution. . . . . $ 394,803$ 291,877$1,239,213$1,089,718
Natural gas and oil exploration and production . . 41,426 48,787 136,636 138,803
Natural gas liquids processing . . . . . . . . . . 22,324 24,108 61,394 65,657
Power. . . . . . . . . . . . . . . . . . . . . . . 13,258 10,496 31,424 40,473
Less intercompany revenues . . . . . . . . . . . . (32,085) (44,167) (113,090) (97,848)
-------- ------------------ ---------
Total. . . . . . . . . . . . . . . . . . . . . 439,726 331,101 1,355,577 1,236,803
-------- ------------------ ---------
Costs and Expenses
Gas purchase . . . . . . . . . . . . . . . . . . . 306,803 186,867 869,455 712,620
Operating expenses . . . . . . . . . . . . . . . . 90,231 92,029 258,760 256,203
Depreciation and amortization. . . . . . . . . . . 32,379 35,025 99,572 99,741
Gross receipts and production taxes. . . . . . . . 8,152 9,143 38,237 42,442
Payroll, ad valorem and other taxes. . . . . . . . 6,296 7,849 23,554 21,592
-------- -------- --------- ---------
Total. . . . . . . . . . . . . . . . . . . . . 443,861 330,913 1,289,578 1,132,598
-------- -------- --------- ---------
Operating Income (Loss) . . . . . . . . . . . . . . (4,135) 188 65,999 104,205
Other Income (Expense) - Net. . . . . . . . . . . . (928) (5,935) (3,134) (7,125)
Interest Expense. . . . . . . . . . . . . . . . . . 17,691 18,565 50,448 55,517
-------- -------- --------- ---------
Income (Loss) Before Income Taxes . . . . . . . . . (22,754) (24,312) 12,417 41,563
Income Taxes (Benefit). . . . . . . . . . . . . . . (7,788) 3,353 3,990 26,205
-------- -------- --------- ---------
Income (Loss) from Continuing Operations. . . . . . (14,966) (27,665) 8,427 15,358
Income from Discontinued Operations . . . . . . . . 399 4,851 1,704 5,093
-------- -------- --------- ---------
Net Income (Loss) . . . . . . . . . . . . . . . . . (14,567) (22,814) 10,131 20,451
Provision for Dividends on Preferred Stock. . . . . 2,980 3,156 8,596 9,506
-------- -------- --------- ---------
Earnings (Loss) Applicable to Common Stock. . . . . $(17,547)$(25,970)$ 1,535 $ 10,945
======== ======== ========= =========
Per Share of Common Stock
Income (loss) from continuing operations after provision
for dividends on preferred stock . . . . . . . . $ (.27)$ (.46)$ $ .08
Discontinued operations. . . . . . . . . . . . . . .01 .07 .02 .08
-------- -------- --------- ---------
Earnings (loss) applicable to common stock . . . . $ (.26)$ (.39)$ .02 $ .16
======== ======== ========= =========
Cash dividends declared. . . . . . . . . . . . . . $ .05 $ .05 $ .15 $ .15
======== ======== ========= =========
Average Common and Dilutive Common
Equivalent Shares Outstanding . . . . . . . . . . 66,806 66,453 66,830 66,519
======== ======== ========= =========
Operating Income (Loss) of Major Businesses
(Excludes general corporate expenses)
Natural gas transmission and distribution. . . . . $ (5,992)$ (1,711)$ 53,807 $ 78,596
Natural gas and oil exploration and production . . 1,825 4,563 18,025 14,322
Natural gas liquids processing . . . . . . . . . . (186) 628 (1,567) 5,521
Power. . . . . . . . . . . . . . . . . . . . . . . 2,952 (501) 3,200 13,625
<FN>
See accompanying Notes.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF CONSOLIDATED
CASH FLOWS (UNAUDITED)
<CAPTION>
Nine Months Ended
September 30
------------------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Income from continuing operations . . . . . . . . . . . . . . . . . . $ 8,427 $ 15,358
Adjustments to reconcile income to net cash flows
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 99,572 99,741
Deferred income tax expense . . . . . . . . . . . . . . . . . . . . 3,043 9,085
Recoveries of gas purchase contract settlements - net . . . . . . . 29,586 23,364
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,442 514
-------- --------
Net cash flows provided by continuing operating
activities before changes in current operating
assets and liabilities. . . . . . . . . . . . . . . . . . . . . 142,070 148,062
Cash effect of changes in current operating assets
and liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (93,300) (71,882)
-------- --------
Net cash flows from continuing operating activities . . . . . . . 48,770 76,180
-------- --------
INVESTING ACTIVITIES
Property, plant and equipment additions . . . . . . . . . . . . . . . (191,023) (153,558)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (962) (14,346)
Discontinued operations . . . . . . . . . . . . . . . . . . . . . . . (117,793) (2,547)
-------- --------
Net cash flows used for investing activities. . . . . . . . . . . (309,778) (170,451)
-------- --------
Net cash flows used for operating
and investing activities. . . . . . . . . . . . . . . . . . . . (261,008) (94,271)
-------- --------
FINANCING ACTIVITIES
Change in commercial paper and other short-term borrowings. . . . . . 258,200 50,065
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. . . . . . . . . . . . . . . . . . . (26,859) 19,922
Issuance of common stock. . . . . . . . . . . . . . . . . . . . . . . 2,856 9,149
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . (18,727) (19,479)
-------- --------
Net cash flows from financing activities. . . . . . . . . . . . . 252,740 73,023
-------- --------
Net Decrease in Cash and Equivalents. . . . . . . . . . . . . . . . . . (8,268) (21,248)
Cash and Equivalents at Beginning of Period . . . . . . . . . . . . . . 19,203 48,553
-------- --------
Cash and Equivalents at End of Period . . . . . . . . . . . . . . . . . $ 10,935 $ 27,305
======== ========
<FN>
See accompanying Notes.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(September 30, 1994 Unaudited)
<CAPTION>
September 30 December 31
1994 1993
------------ -----------
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . . $ 10,935 $ 19,203
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . 163,052 224,947
Gas stored underground . . . . . . . . . . . . . . . . . . . . . 127,632 109,615
Gas purchase settlements recoverable from customers. . . . . . . 34,100 42,800
Investment in discontinued operations. . . . . . . . . . . . . . 67,982
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106,420 111,002
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 510,121 507,567
---------- ----------
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,906 86,208
---------- ----------
Property, Plant and Equipment (full-cost
method for gas and oil properties) . . . . . . . . . . . . . . . 3,771,671 3,594,056
Less accumulated depreciation and amortization . . . . . . . . . 1,550,045 1,476,003
---------- ----------
Net property, plant and equipment. . . . . . . . . . . . . . . 2,221,626 2,118,053
---------- ----------
Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,941 48,433
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,842,594 $2,760,261
========== ==========
LIABILITIES
Current Liabilities
Commercial paper and other short-term borrowings . . . . . . . . $ 289,700 $ 31,500
Current maturities of senior long-term debt. . . . . . . . . . . 10,600 10,600
Accounts payable and other accrued liabilities . . . . . . . . . 332,930 442,395
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . . 28,789 34,021
Litigation judgment payable. . . . . . . . . . . . . . . . . . . 62,035
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,011 122,534
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . . 779,030 703,085
---------- ----------
Senior Long-term Debt . . . . . . . . . . . . . . . . . . . . . . . 669,570 628,227
---------- ----------
Convertible Subordinated Debentures . . . . . . . . . . . . . . . . 90,750 90,750
---------- ----------
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . 317,720 321,364
---------- ----------
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 171,440 195,117
---------- ----------
Shareholders' Equity
Adjustable rate preferred stock. . . . . . . . . . . . . . . . . 175,000 175,000
---------- ----------
Common shareholders' equity
Common stock (100,000 shares authorized;
66,926 and 66,656 shares outstanding) . . . . . . . . . . . 297,820 296,619
Paid in capital. . . . . . . . . . . . . . . . . . . . . . . . 339,833 339,115
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . 2,549 10,984
Unamortized restricted stock compensation. . . . . . . . . . . (1,118)
---------- ----------
Common shareholders' equity. . . . . . . . . . . . . . . . . 639,084 646,718
---------- ----------
Shareholders' equity . . . . . . . . . . . . . . . . . . . 814,084 821,718
---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . $2,842,594 $2,760,261
========== ==========
<FN>
See accompanying Notes.
</TABLE>
<PAGE>
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Notes to Condensed Financial Statements
1. On October 11, 1994, the Corporation completed the previously announced
sale of its wholly owned subsidiary, Enserch Environmental Corporation, to
Foster Wheeler Corporation for net cash proceeds of some $97 million plus
reimbursement for outstanding intercompany borrowings. The pretax gain
from the sale of approximately $45 million will be recorded in the fourth
quarter of 1994. The investment in the net assets of Enserch
Environmental, which totaled some $68 million (excluding intercompany
borrowings of $19 million) as of September 30, 1994, has been reflected as
a current asset on the balance sheet.
Prior-period results have been restated to reflect Enserch Environmental
as a component of discontinued operations. Results of Enserch
Environmental Corporation included in discontinued operations are
summarized as follows (in thousands except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
---------------------- ---------------------
1994 1993 1994 1993
------- ------- -------- --------
<S> <C> <C> <C> <C>
Revenues $60,212 $41,039 $145,969 $123,113
Operating Income 1,236 1,268 4,025 3,809
Net Income 399 302 1,704 908
Per Share .01 - .02 .01
</TABLE>
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.
4. 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.
5. 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.
<PAGE>
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
ENSERCH Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
ENSERCH Corporation and subsidiary companies as of September 30, 1994, and the
related condensed statements of consolidated income for the three months and
nine months ended September 30, 1994 and 1993, and the condensed statements
of consolidated cash flows for the nine months ended September 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 LLP
Dallas, Texas
October 25, 1994
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
CONSOLIDATED RESULTS
ENSERCH Corporation reported a loss from continuing operations of
$15 million for the third quarter of 1994, compared with a loss of $28 million
from continuing operations for the year-ago quarter. Third-quarter 1994
results were affected by lower sales volumes and prices for natural gas, oil
and natural gas liquids. Third-quarter 1993 results included a $10 million
noncash charge to deferred taxes for the 1% increase in the statutory federal
income-tax rate on corporations, and a $5.9 million pretax charge($3.8 million
after taxes) for litigation. The loss applicable to common stock for the third
quarter of 1994 was $18 million, or $.26 per share, compared with a loss of
$26 million, or $.39 per share, for the year-ago period. The operating loss
for the 1994 third quarter was $4.1 million versus operating income of
$.2 million for the like period a year ago. Third-quarter revenues were
$440 million, compared with $331 million for the year-earlier period.
For the first nine months of 1994, ENSERCH's income from continuing
operations was $8.4 million, compared with $15 million from continuing
operations for the first nine months of 1993. Earnings applicable to common
stock were $1.5 million, or $.02 per share, versus $11 million, or $.16 per
share, for the year-ago period. For the first nine months of 1994, operating
income was $66 million versus $104 million for the year-ago period, which
benefited from the sale of the Corporation's position in a power project,
higher oil and natural gas liquids prices and more favorable heating weather.
Revenues were $1.4 billion, compared with $1.2 billion last year. Interest
expense for the first nine months of 1994 was 9% less than the year-earlier
period as a result of reduced debt and the restructuring of long-term debt at
lower rates, and the provision for preferred dividends was 10% lower than the
1993 period.
NATURAL GAS TRANSMISSION AND DISTRIBUTION
Transmission and Distribution operations had an operating loss of
$6.0 million in the third quarter of 1994 versus a loss of $1.7 million in the
prior-year period. This business historically experiences poor results in the
third quarter due to seasonally reduced residential and commercial demand.
Industrial and electric-generation sales volumes declined 22%. Cooling weather
was 15% less than in the prior-year third quarter, reducing customer demand.
Total throughput improved 38% to 218 billion cubic feet (Bcf), compared with
158 Bcf for the year-ago period, a result of increased off-system activity in
the third quarter. Gas transportation volumes were 95 Bcf, a decline of 12%
compared with the same period a year ago.
Operating income for the first nine months of 1994 was $54 million versus
$79 million for the same period last year. Higher-margin residential and
commercial gas sales volumes declined 5% from the year-earlier period, and
industrial and electric-generation sales volumes were down 13% from the 1993
period. Overall, system throughput improved, increasing 28% to 596 Bcf. Gas
transportation volumes were 13% higher than the year-ago period.
The natural-gas vehicle market in Lone Star's service area continues to
grow at a steady pace. Year-to-date public natural-gas fuel sales have
increased 38%, compared with the same period a year ago. ENSERCH's joint-
venture conversion company, TranStar, posted an increase of more than 100% in
the number of conversions for the first nine months of 1994 compared with the
same period a year ago.
NATURAL GAS AND OIL EXPLORATION AND PRODUCTION
Operating income from Exploration and Production operations for the third
quarter of 1994 was $1.8 million versus $4.6 million a year ago. Natural-gas
sales volumes were 16.3 Bcf, a 13% decrease from the year-ago period, with the
average sales price of $2.06 per thousand cubic feet down 2% from the third
quarter of 1993. Gas prices in the third quarter reflect reduced demand due
to milder-than-normal weather patterns and earlier filling of storages. Oil
sales volumes were 487 thousand barrels, down 8% from the year-ago period. The
average sales price per barrel of $15.29 was down 5%.
Third-quarter operating expenses were 10% less than the year-earlier
period, principally due to a decrease in amortization expense resulting from
lower levels of production. The overall rate of amortization for the third
quarter of 1994 was $1.01 per million British thermal unit (MMBtu) produced,
up slightly from $1.00 in the third quarter of 1993. Average production cost
per MMBtu for the third quarter increased to $.56 in 1994 from $.54 in 1993,
as the effects of fixed costs increased due to the decline in production.
For the nine months ended September 30, 1994, operating income for
Exploration and Production operations was $18 million, 26% higher than the
same period a year ago, primarily due to a 6% improvement in the average sales
price for natural gas and lower operating expenses. Natural-gas sales volumes
were virtually the same as the year-earlier period. Oil revenues decreased
18% due to declines in both prices and sales volumes.
At September 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 a modest amount, based on average prices and contracts in
effect in September 1994. Product prices are subject to seasonal and other
fluctuations.
ENSERCH uses gas and oil swaps, collars and futures agreements to hedge
volatile product prices for a portion (normally 30 to 70 percent) of
anticipated future monthly gas and oil production. The purpose of these
hedging activities is to fix the prices to be received. Under these
agreements, ENSERCH receives or makes payments based on the differential
between a fixed and a variable product price. These agreements are settled in
cash at or prior to expiration or exchanged for physical delivery contracts.
Realized gains and losses on hedging activities are deferred and included in
income during the month that the related physical sale occurs. At
September 30, 1994, ENSERCH had outstanding swaps, collars and futures
agreements extending through December 1995 to exchange payments on
11,250,000 MMBtus of gas and 1,650,000 barrels of oil on which ENSERCH had
$.4 million of net unrealized gains based on the difference between the strike
price and the NYMEX futures price for the applicable trading month. At
September 30, 1994, realized gains on hedging activities of $1.3 million were
deferred.
NATURAL GAS LIQUIDS PROCESSING
Natural Gas Liquids (NGL) Processing operations approached breakeven for
the third quarter, an improvement from the losses reported for the first and
second quarters of 1994. Production volumes for the third quarter were 3%
above the year-earlier period; however, sales volumes decreased 12% compared
with the 1993 period, a result of higher inventory levels. The average sales
price per barrel of $11.61 declined 4% from the year-earlier period. During
the first nine months of 1994, NGL Processing operations reported an operating
loss of $1.6 million versus operating income of $5.5 million for the 1993
period, with a 3% decline in NGL sales volumes and a 13% decrease in the
average sales price.
POWER
Third-quarter operating income from Power operations totaled $3.0 million,
compared with an operating loss of $.5 million for the year-earlier period.
Enserch Development Corporation began earning management and incentive fees
from operating a 160-megawatt cogeneration plant in Bellingham, Washington, in
the second quarter, which should provide a steady stream of future income.
Year-to-date results from Power operations were $10 million less than the 1993
period, which included the $15 million gain from the sale of Enserch
Development Corporation's position in a power project.
CASH FLOWS AND FINANCING ACTIVITIES
Net cash flows from operating activities for the first nine months of 1994
were $49 million versus $76 million for the same period of 1993. Higher
operating working capital requirements and lower income from continuing
operations were the primary reasons for the decline. Net recoveries of gas-
purchase contract settlements improved $6 million from the year-earlier
period.
Investing activities required net cash flows of $310 million. The
$118 million requirement for discontinued operations includes $49 million for
Enserch Environmental operations, mostly reflecting a restoration of accounts
receivable to a normal level following the December 1993 sale of receivables.
Cash received from the sale of Enserch Environmental in October included
recovery of this requirement. The 1994 discontinued operations requirement
also includes the remittance to the bank of $22 million for December
collections of the sold receivables and the payment of accrued expenses of the
sale, accrued taxes and other retained obligations. Property additions of
$191 million were $37 million higher than in the 1993 period, with increases
of $28 million for Transmission and Distribution and $7 million for
Exploration and Production.
Planned property, plant and equipment additions for 1994 total
$244 million, including $119 million designated for Transmission and
Distribution, $116 million for Exploration and Production, and $9 million for
other requirements. The planned expenditures are expected to be funded from
internal cash flow and external financings as required. The planned
expenditures exclude costs related to the construction of the offshore
platform and related facilities associated with ENSERCH's interest in the
Garden Banks Block 388 (100% owned) development project in the Gulf of Mexico.
An operating lease arrangement is providing financing for up to $235 million
for the costs associated with the Garden Banks project. The cost estimate for
the project recently has been increased to some $280 million due to the
addition of equipment, higher-than-expected costs for both labor and
materials, design modifications and other factors. Financing options for the
additional costs currently are being evaluated, including an addition to the
current operating lease arrangement.
In 1992, ENSERCH entered into an operating lease arrangement to provide
financing for its portion of the offshore platforms and related facilities for
the Mississippi Canyon Block 441 (37.5% owned) project. A total of $34 million
was required for the project, which was completed in early 1993. The lease was
renewed in the second quarter of 1994 under terms that resulted in capital
lease accounting treatment.
The net cash of $261 million required by operating and investing
activities for the nine months ended September 30, 1994 was temporarily
financed by commercial paper and short-term bank borrowings. The temporary
borrowings were reduced in October with the proceeds from the sale of Enserch
Environmental. In addition, a $150 million privately placed long-term debt
issue in November was used to refund maturing long-term debt of $100 million
and to further reduce short-term bank borrowings.
In February 1994, the Corporation issued $150 million of 6 3/8% Notes due
2004 in a public offering. In March, the net proceeds of that issue were used
for the early redemption of all of the $74 million principal amount of
outstanding sinking fund debentures, which required call premiums of
$1.4 million, 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 and reduce commercial paper
borrowings.
Senior long-term and convertible debt, including current maturities, as a
percentage of total capitalization was 48.6% at September 30, 1994, compared
with 47.0% at yearend 1993. At September 30, 1994, the current ratio was .65,
compared with .72 at December 31, 1993.
At September 30, 1994, the Corporation had short- and interim-term bank
lines totaling $650 million, of which $100 million was utilized. The
$100 million borrowing was reduced to $53 million in October 1994 with a
portion of the proceeds from the sale of Enserch Environmental, with the
remainder repaid in November 1994. Effective October 28, 1994, the
Corporation bank credit lines were renegotiated to total $600 million and
were extended to expire in 1997.
ENSERCH is proceeding with its previously announced intention to
reorganize Enserch Exploration Partners, Ltd., its 99.2% owned natural gas and
oil limited partnership, into a corporation to be named Enserch Exploration,
Inc. The goal is to accomplish this by yearend and begin 1995 with an
independent exploration and production corporation. This new company, with
over $1 billion in gas and oil assets and no long-term obligations other than
those related to leases on two offshore facilities, is expected to provide
the Corporation's exploration and production operation improved exposure
so that it is more fairly valued in the marketplace. ENSERCH plans to raise
the minority interest in the new company to a meaningful level, while
continuing to own a majority interest.
Large institutions, which are often prohibited from owning partnerships in
their investment portfolios, may be attracted to Enserch Exploration, Inc.
common stock. After the reorganization process is completed, ENSERCH will seek
to increase the level of minority ownership by exchanging shares of common
stock in the new corporation with shareholders of other companies having gas
and oil reserves that complement present assets, thereby increasing the size
and scope of Enserch Exploration, Inc. through acquisitions.
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 September 30, 1994, there was a total of four lawsuits
related to 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.) Other unsettled
claims at September 30, 1994 totaled $3.6 million.
At September 30, 1994, there was an unrecovered balance of gas-purchase
contract settlements of $83 million, including $46 million that represented
prepayments for gas expected to be recouped under contracts covering future
gas purchases. The remaining $37 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 nine months ended September 30, 1994 is as follows:
<TABLE>
<CAPTION>
Recoupable Recoverable
Prepayments Settlements Total
----------- ----------- -----
(In millions)
<S> <C> <C> <C>
December 31, 1993 $ 63 $ 48 $ 111
Gas-purchase contract settlements 2 2
Recouped or recovered (10) (20) (30)
Other (7) 7
----- ----- -----
September 30, 1994 $ 46 $ 37 $ 83
===== ===== =====
</TABLE>
DRILLING PROGRAM
Under an agreement with Mobil Producing, Texas and New Mexico, Inc.
(Mobil), an exploratory well was drilled on ENSERCH's Garden Banks Block 387,
which is part of ENSERCH's Garden Banks unit in the deep-water area of the
Gulf of Mexico. The well, drilled in 2,200 feet of water to a depth of
11,893 feet, encountered a total of 150 feet of oil pay in the 9,800- and
11,200-foot reservoirs. Mobil has an option to acquire, for additional
consideration, a 40% interest in ENSERCH's Garden Banks unit (Blocks 344, 345,
386, 387, 388 and 389) and in the unit's production system. Mobil also
acquired an additional long-cable 3-D seismic survey over the unit to further
assess the deeper horizons comparable to a nearby producing field. ENSERCH,
which currently owns 100% of the project, will remain the operator. ENSERCH
anticipates drilling the next well in the spring of 1995 to further develop
this area.
Work continued on the conversion of a semisubmersible rig to a floating
production facility for the development of the Garden Banks unit, with the
modification of the major structural components well under way. During the
third quarter, the subsea template and two gathering lines were installed and
connected to the shallow-water production facility located 54 miles away.
Fabrication of the shallow-water facility deck was completed, and installation
of production facilities on the deck is in progress. Initial production is
anticipated in mid-1995.
Following drilling of the Green Canyon Block 254 sidetrack confirmation
well, also located in the Gulf, a lease extension action was filed with the
Minerals Management Service outlining a future operations schedule. Drilling
of an additional appraisal well is scheduled to begin during the first quarter
of 1995.
<PAGE>
<PAGE>
<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Natural Gas Transmission and Distribution Operating Data (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income (Loss)(in millions) . . . . . . . . . $ (6.0) $ (1.7) $ 53.8 $ 78.6
====== ====== ======== ========
Natural Gas Sales Revenues by Customer (in millions):
Residential & commercial . . . . . . . . . . . . . . $ 95.5 $ 94.7 $ 536.2 $ 566.7
Industrial & electric generation . . . . . . . . . . 78.1 102.0 229.9 262.8
Pipeline & other . . . . . . . . . . . . . . . . . . 204.4 76.6 420.8 207.9
------ ------ -------- --------
Total gas sales revenues. . . . . . . . . . . . $378.0 $273.3 $1,186.9 $1,037.4
====== ====== ======== ========
Natural Gas Revenues (in millions):
Lone Star Gas Company sales. . . . . . . . . . . . . $128.6 $128.3 $ 621.5 $ 662.5
Enserch Gas Company sales. . . . . . . . . . . . . . 249.4 145.0 565.4 374.9
------ ------ -------- --------
Total gas sales revenues. . . . . . . . . . . . 378.0 273.3 1,186.9 1,037.4
Gas transportation . . . . . . . . . . . . . . . . . 12.7 14.7 39.9 39.3
------ ------ -------- --------
Total natural gas revenues. . . . . . . . . . . 390.7 288.0 1,226.8 1,076.7
Other . . . . . . . . . . . . . . . . . . . . . . . 4.1 3.9 12.4 13.0
------ ------ -------- --------
Total revenues. . . . . . . . . . . . . . . . . $394.8 $291.9 $1,239.2 $1,089.7
====== ====== ======== ========
Natural Gas Sales Volumes by Customer (Bcf):
Residential & commercial . . . . . . . . . . . . . . 13.2 13.1 89.9 94.6
Industrial & electric generation . . . . . . . . . . 30.1 38.5 90.0 102.9
Pipeline & other . . . . . . . . . . . . . . . . . . 107.5 35.7 212.1 97.5
------ ------ -------- --------
Total gas sales volumes . . . . . . . . . . . . 150.8 87.3 392.0 295.0
====== ====== ======== ========
Natural Gas Volumes (Bcf):
Lone Star Gas Company sales. . . . . . . . . . . . . 20.2 19.7 109.4 116.8
Enserch Gas Company sales. . . . . . . . . . . . . . 130.6 67.6 282.6 178.2
------ ------ -------- --------
Total gas sales volumes . . . . . . . . . . . . 150.8 87.3 392.0 295.0
====== ====== ======== ========
Gas transportation:
For associated . . . . . . . . . . . . . . . . . . 28.0 37.3 104.6 103.4
For others (nonassociated) . . . . . . . . . . . . 66.8 70.4 204.4 169.7
------ ------ -------- --------
Total . . . . . . . . . . . . . . . . . . . . . 94.8 107.7 309.0 273.1
====== ====== ======== ========
Lone Star system throughput . . . . . . . . . . . . 117.1 131.6 424.2 398.8
Off-system sales (1) . . . . . . . . . . . . . . . . 100.5 26.1 172.2 65.9
------ ------ -------- --------
Total throughput (2) . . . . . . . . . . . . . 217.6 157.7 596.4 464.7
====== ====== ======== ========
Natural Gas Sales Revenues (per Mcf):
Lone Star Gas Company. . . . . . . . . . . . . . . . $ 6.36 $ 6.51 $ 5.68 $ 5.67
Enserch Gas Company. . . . . . . . . . . . . . . . . 1.91 2.14 2.00 2.10
Natural Gas Purchase Cost (per Mcf):
Lone Star Gas Company. . . . . . . . . . . . . . . . $ 3.72 $ 3.71 $ 3.37 $ 3.47
Enserch Gas Company. . . . . . . . . . . . . . . . . 1.89 2.07 1.96 2.00
Gas Transportation Rate (per Mcf). . . . . . . . . . . $ .13 $ .14 $ .13$ .14
<FN>
(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.<PAGE>
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Natural Gas and Oil Exploration and Production Operating Data (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income (in millions) . . . . . . . . . . . . $ 1.8 $ 4.6 $ 18.0 $ 14.3
====== ====== ====== ======
Revenues (in millions)
Natural gas (1). . . . . . . . . . . . . . . . . . . $ 33.4 $ 39.2 $ 111.8 $ 105.2
Oil and condensate . . . . . . . . . . . . . . . . . 7.5 8.5 23.2 28.4
Natural gas liquids. . . . . . . . . . . . . . . . . .5 1.0 1.3 3.7
Other revenues - net . . . . . . . . . . . . . . . . .1 .3 1.5
------ ------ ------ ------
Total revenues. . . . . . . . . . . . . . . . . . $ 41.4 $ 48.8 $ 136.6 $ 138.8
====== ====== ====== ======
Sales Volumes
Natural gas (MMcf) (1) . . . . . . . . . . . . . . . 16,258 18,655 51,667 51,504
Oil and condensate (MBbl). . . . . . . . . . . . . . 487 527 1,523 1,604
Average Sales Price
Natural gas (per Mcf). . . . . . . . . . . . . . . . $ 2.06 $ 2.10 $ 2.16 $ 2.04
Oil and condensate (per Bbl) . . . . . . . . . . . . 15.29 16.14 15.23 17.71
Net Wells
Drilled. . . . . . . . . . . . . . . . . . . . . . . 12 20 48 62
Productive . . . . . . . . . . . . . . . . . . . . . 9 16 30 52
Data in Equivalent Energy Content (MMBtu) (2)
Average sales price. . . . . . . . . . . . . . . . . $ 2.07 $ 2.13 $ 2.15 $ 2.14
Average production costs . . . . . . . . . . . . . . .56 .54 .53 .56
Amortization rate. . . . . . . . . . . . . . . . . . 1.01 1.00 1.00 .98
<FN>
(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.
</TABLE>
<PAGE>
<PAGE>
<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Natural Gas Liquids Processing Operating Data (Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
-------------------------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Income (Loss) (in millions). . . . . . . . . $ (.2) $ .6 $ (1.6) $ 5.5
====== ====== ====== ======
Revenues (in millions)
Natural gas liquids (1). . . . . . . . . . . . . . . $ 17.1 $ 20.0 $ 47.9 $ 57.3
Other. . . . . . . . . . . . . . . . . . . . . . . . 5.2 4.1 13.5 8.4
------ ------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . $ 22.3 $ 24.1 $ 61.4 $ 65.7
====== ====== ====== ======
Natural Gas Liquids
Sales volumes (MBbl)(1). . . . . . . . . . . . . . . 1,468 1,660 4,278 4,431
Average sales price (per Bbl). . . . . . . . . . . . $11.61 $12.05 $11.19 $12.93
<FN>
(1) Excludes products purchased for resale.
</TABLE>
<PAGE>
<PAGE>
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; that it was fraudulently induced and coerced into releasing the
utility division from its obligation to make minimum purchases payments; and
that the contract was breached. The plaintiff initially sought actual damages
in excess of $100 million in addition to punitive damages. Following recent
discovery proceedings of plaintiff's expert witnesses on the utility
division's alledged 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 plus an additional
$68 million related to alleged secondary damages. 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
November 14, 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 September 30, 1994.
<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
undersigned thereunto duly authorized.
ENSERCH Corporation
(Registrant)
Date: November 14, 1994 By /s/ S. R. Singer
---------------------------
S. R. Singer, Senior Vice
President, Finance and
Corporate Development, Chief
Financial Officer
Date: November 14, 1994 By /s/ J. W. Pinkerton
---------------------------
J. W. Pinkerton,
Vice President and Controller,
Chief Accounting Officer
<PAGE>
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 September 30, 1994 and 1993, as indicated in
our report dated October 25, 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 September 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 LLP
Dallas, Texas
November 14, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
ENSERCH CORPORATION 3RD QUARTER 1994 FORM 10-Q
</LEGEND>
<CIK> 0000033015
<NAME> ENSERCH CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> SEP-30-1994
<CASH> 10,935
<SECURITIES> 0
<RECEIVABLES> 163,052
<ALLOWANCES> 0
<INVENTORY> 127,632
<CURRENT-ASSETS> 510,121
<PP&E> 3,771,671
<DEPRECIATION> 1,550,045
<TOTAL-ASSETS> 2,842,594
<CURRENT-LIABILITIES> 779,030
<BONDS> 669,570
<COMMON> 639,084
0
175,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,842,594
<SALES> 0
<TOTAL-REVENUES> 1,355,577
<CGS> 0
<TOTAL-COSTS> 1,289,578
<OTHER-EXPENSES> 3,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,448
<INCOME-PRETAX> 12,417
<INCOME-TAX> 3,990
<INCOME-CONTINUING> 8,427
<DISCONTINUED> 1,704
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,131
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
</TABLE>
