<PAGE>
SECURITIES AND EXCHANGE 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, 1996 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. 1-3183
ENSERCH CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-0399066
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
ENSERCH Center, 300 South St. Paul, Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
214-651-8700
(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 13, 1996: 68,862,559
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
---- ----
(In thousands except
per share amounts)
<S> <C> <C>
Revenues
Natural gas and oil exploration and production . . . . . . . . $ 75,411 $ 41,661
Natural gas pipeline & GPM . . . . . . . . . . . . . . . . . . 344,896 269,616
Natural gas distribution . . . . . . . . . . . . . . . . . . . 362,325 363,245
Power and other. . . . . . . . . . . . . . . . . . . . . . . . 7,866 8,591
Less intercompany revenues . . . . . . . . . . . . . . . . . . (111,855) (70,472)
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 678,643 612,641
-------- --------
Costs and Expenses
Gas purchase . . . . . . . . . . . . . . . . . . . . . . . . . 422,318 395,356
Operating expenses . . . . . . . . . . . . . . . . . . . . . . 110,889 92,829
Depreciation and amortization. . . . . . . . . . . . . . . . . 46,401 31,215
Gross receipts and production taxes. . . . . . . . . . . . . . 17,938 16,423
Payroll, ad valorem and other taxes. . . . . . . . . . . . . . 10,705 9,286
-------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . 608,251 545,109
-------- --------
Operating Income. . . . . . . . . . . . . . . . . . . . . . . . 70,392 67,532
Other Income (Expense) - Net. . . . . . . . . . . . . . . . . . (782) (882)
Interest and Other Financing Costs . . . . . . . . . . . . . . . (22,656) (17,586)
-------- --------
Income before Income Taxes and Minority Interest . . . . . . . . 46,954 49,064
Income Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 17,170 18,121
Minority Interest . . . . . . . . . . . . . . . . . . . . . . . 7 127
-------- --------
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . 29,777 30,816
Provision for Dividends on Preferred Stock . . . . . . . . . . . 2,759 3,036
-------- --------
Earnings Applicable to Common Stock . . . . . . . . . . . . . . $ 27,018 $ 27,780
======== ========
Per Share of Common Stock
Earnings applicable to common stock . . . . . . . . . . . . . $ .39 $ .41
======== ========
Cash dividends declared. . . . . . . . . . . . . . . . . . . . $ .05 $ .05
======== ========
Average Common and Dilutive Common
Equivalent Shares Outstanding. . . . . . . . . . . . . . . . . 68,475 68,140
======== ========
Operating Income (Loss) of Major Businesses
Natural gas and oil exploration and production . . . . . . . . $ 4,588 $ 356
Natural gas pipeline & GPM
Pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . 33,479 29,703
Gas marketing . . . . . . . . . . . . . . . . . . . . . . . (11,629) 3,738
Gas processing. . . . . . . . . . . . . . . . . . . . . . . 3,954 898
Natural gas distribution . . . . . . . . . . . . . . . . . . . 42,227 34,634
Power and other. . . . . . . . . . . . . . . . . . . . . . . . (292) 273
<FN>
See accompanying Notes.
</FN>
</TABLE>
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<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED STATEMENTS OF CONSOLIDATED
CASH FLOWS (UNAUDITED)
<CAPTION>
Three Months Ended
March 31
-----------------------
1996 1995
---- ----
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,777 $ 30,816
Depreciation and amortization. . . . . . . . . . . . . . . . . 46,401 31,215
Deferred income-tax expense. . . . . . . . . . . . . . . . . . 15,512 17,797
Recoveries of gas-purchase contract settlements. . . . . . . . 5,462 19,975
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,179 7,051
Changes in current operating assets and liabilities
Accounts receivable. . . . . . . . . . . . . . . . . . . . . (23,019) 41,557
Other current assets . . . . . . . . . . . . . . . . . . . . 7,721 59,549
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (7,641) (53,541)
Other current liabilities. . . . . . . . . . . . . . . . . . 13,671 (18,627)
-------- --------
Net cash flows from operating activities . . . . . . . . . . 90,063 135,792
-------- --------
INVESTING ACTIVITIES
Additions to property, plant and equipment . . . . . . . . . . (51,239) (65,783)
Sales and retirements of property, plant and equipment . . . . 15,468 2,302
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,016) (35,065)
-------- --------
Net cash flows used for investing activities . . . . . . . . (62,787) (98,546)
-------- --------
FINANCING ACTIVITIES
Change in commercial paper and other short-term borrowings . . (34,313) (39,521)
Borrowings under EEX bank revolving credit agreement . . . . . 55,000
Retirement of EEX bank revolving credit agreement. . . . . . . (20,000)
Retirement of senior long-term debt. . . . . . . . . . . . . . (330) (170)
Change in advances under lease arrangements. . . . . . . . . . (12,233) (1,152)
Change in assignments of future gas purchase credits . . . . . (4,790)
Issuance of ENSERCH common stock . . . . . . . . . . . . . . . 672 1,003
Cash dividends paid. . . . . . . . . . . . . . . . . . . . . . (6,231) (6,384)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
-------- --------
Net cash flows used for financing activities . . . . . . . . (17,386) (51,014)
-------- --------
Net Cash Flows from (used for) Discontinued Operations . . . . . (6,276) 14,218
-------- --------
Net Increase in Cash and Equivalents . . . . . . . . . . . . . . 3,614 450
Cash and Equivalents at Beginning of Period. . . . . . . . . . . 8,561 9,811
-------- --------
Cash and Equivalents at End of Period. . . . . . . . . . . . . . $ 12,175 $ 10,261
======== ========
<FN>
See accompanying Notes.
</FN>
</TABLE>
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<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(March 31, 1996 Unaudited)
<CAPTION>
March 31 December 31
1996 1995
--------- -----------
(In thousands)
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents . . . . . . . . . . . . . . . . . . . . . $ 12,175 $ 8,561
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . 317,925 296,178
Gas stored underground . . . . . . . . . . . . . . . . . . . . 80,450 107,633
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138,333 121,544
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . 548,883 533,916
---------- ----------
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 71,656 64,974
---------- ----------
Property, Plant and Equipment (full-cost
method for gas and oil properties) . . . . . . . . . . . . . . 4,442,088 4,414,189
Less accumulated depreciation and amortization . . . . . . . . 1,727,369 1,687,409
---------- ----------
Net property, plant and equipment. . . . . . . . . . . . . . 2,714,719 2,726,780
---------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 62,431 55,424
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $3,397,689 $3,381,094
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Commercial paper and other short-term borrowings . . . . . . . $ 152,687 $ 187,000
Current portion of senior long-term debt . . . . . . . . . . . 14,829 14,760
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . 300,930 329,844
Accrued interest . . . . . . . . . . . . . . . . . . . . . . . 17,282 22,436
Other current liabilities. . . . . . . . . . . . . . . . . . . 128,733 123,212
Liabilities for discontinued operations. . . . . . . . . . . . 37,695 42,120
---------- ----------
Total current liabilities. . . . . . . . . . . . . . . . . . 652,156 719,372
---------- ----------
Senior Long-term Debt. . . . . . . . . . . . . . . . . . . . . . 905,150 870,476
---------- ----------
Convertible Subordinated Debentures. . . . . . . . . . . . . . . 90,750 90,750
---------- ----------
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . . . 292,451 277,076
---------- ----------
Other Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 231,781 222,804
---------- ----------
Mandatorily Redeemable Preferred Securities of Subsidiary of EEX 150,000 150,000
---------- ----------
Minority Interest in Subsidiaries. . . . . . . . . . . . . . . . 156,733 156,434
---------- ----------
Shareholders' Equity
Adjustable rate preferred stock. . . . . . . . . . . . . . . . 175,000 175,000
---------- ----------
Common shareholders' equity
Common stock (100,000 shares authorized;
68,644 and 68,516 shares outstanding). . . . . . . . . . . 305,467 304,897
Paid in capital. . . . . . . . . . . . . . . . . . . . . . . 340,316 338,857
Retained earnings. . . . . . . . . . . . . . . . . . . . . . 100,547 76,941
Foreign currency translation adjustment. . . . . . . . . . . 48
Unamortized restricted stock compensation. . . . . . . . . . (2,710) (1,513)
---------- ----------
Common shareholders' equity. . . . . . . . . . . . . . . . 743,668 719,182
---------- ----------
Shareholders' equity . . . . . . . . . . . . . . . . . . 918,668 894,182
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . $3,397,689 $3,381,094
========== ==========
<FN>
See accompanying Notes.
</FN>
</TABLE>
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ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Notes to Condensed Consolidated Financial Statements
1. Earnings per share applicable to common stock are based on the weighted
average number of common shares outstanding during the periods, including
common equivalent shares when dilutive. Fully diluted earnings per share
are not presented since the assumed exercise of stock options and
conversion of debentures would not be dilutive.
2. On April 15, 1996, ENSERCH Corporation announced that it had entered into
a definitive agreement with Texas Utilities Company providing for a
strategic business combination. The merger would be preceded by the
distribution of ENSERCH's 83.4% interest in Enserch Exploration, Inc. to
the ENSERCH shareholders.
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.
Certain prior-period amounts have been reclassified to conform to the 1996
presentation.
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INDEPENDENT ACCOUNTANTS' REPORT
ENSERCH Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
ENSERCH Corporation and subsidiary companies as of March 31, 1996, and the
related condensed statements of consolidated income and cash flows for the
three months ended March 31, 1996 and 1995. 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, 1995, 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 9, 1996,
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, 1995, 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
May 1, 1996
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<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
CONSOLIDATED RESULTS - ENSERCH Corporation's earnings applicable to common
stock for the first quarter of 1996 were $27 million ($.39 per share),
compared with $28 million ($.41 per share) for the 1995 first quarter.
Revenues for the first quarter increased to $679 million from $613 million for
the first quarter last year. Operating income for the first three months of
1996 was $70 million versus $68 million for the first quarter of 1995. The
natural gas and oil exploration and production and the natural gas
distribution segments both had meaningful improvements in operating income;
however, a negative margin from gas marketing activities caused first-quarter
operating results for the natural gas pipeline & GPM segment to be
significantly lower than for the first quarter last year.
First-quarter interest and other financing costs of $23 million were
$5 million higher than for the first quarter last year, primarily due to
outstanding debt incurred by Enserch Exploration, Inc. (EEX) to finance a
major acquisition of properties in mid-1995.
NATURAL GAS AND OIL EXPLORATION AND PRODUCTION - Operating income from
exploration and production operations, which are conducted through EEX, was
$4.6 million for the first quarter of 1996, a significant improvement from the
$.4 million for the first quarter last year. First-quarter revenues rose to
$75 million from $42 million for the first quarter of 1995, reflecting a
$22 million increase in natural-gas revenues and an $11 million increase
in oil and other revenues. Natural-gas sales volumes increased to 25 billion
cubic feet (Bcf) for the first quarter of 1996, compared with 14 Bcf sold
during the 1995 first quarter, with the increase primarily attributable to
properties acquired in 1995. The average price received for natural gas for
the first quarter was $2.17 per thousand cubic feet (Mcf), compared with
$2.22 per Mcf for the year earlier. Oil sales volumes of 1.1 million barrels
were more than double the first quarter last year due to production from
acquired properties and start-up of production from the Cooper project in the
Garden Banks area in the Gulf of Mexico. Oil sales for the first quarter
averaged $17.90 per barrel versus $16.79 per barrel for the first quarter last
year.
Operating expenses for the first quarter of 1996 totaled $71 million versus
$41 million for the first quarter of 1995. About $21 million of the increase
is attributable to production costs, depreciation and amortization and
production and ad valorem taxes associated with operating properties acquired
in 1995, and some $7 million of the increase is related to direct costs of the
Cooper project. Lower amortization expense as a result of a decline in
production from all other properties mostly offset increases in other expense
categories.
Losses from the Cooper project during ramp-up of production detracted
$4.5 million from operating results for the first quarter this year. Some
operating costs and amortization vary with production, but other costs and the
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equipment lease costs are essentially fixed and will decline on a per unit
basis as production increases. Operating results from the Cooper project are
expected to improve as production begins from additional development wells and
the related equipment lease and other fixed costs are spread over greater
production. Based on current prices, the Cooper project is expected to reach
breakeven operating income levels near the end of the second quarter this
year.
EEX manages a portion of the risk associated with fluctuations in the price
of natural gas and oil through the use of hedging techniques such as gas and
oil swaps, collars and futures agreements. In total, gas and oil price
hedging activities reduced revenues for the first quarter of 1996 by
$5.7 million but increased revenues by $2.9 million in the first quarter of
1995. At March 31, 1996, EEX had outstanding swaps, collars and futures
agreements that were entered into as hedges extending through December 31,
1996 to exchange payments on 5.2 Bcf of natural gas and 1.2 million barrels
of oil. At March 31, 1996, there were $2.2 million of net unrealized and
unrecognized hedging costs based on the difference between the strike price
and the NYMEX futures price for the applicable trading month. In addition,
there were $1.5 million of costs on hedging activities which were deferred and
will be applied as a reduction in revenues in the month of physical sale of
production.
At year-end 1995 and March 31, 1996, ENSERCH's full-cost ceiling amount
attributable to properties acquired in 1995 exceeded the unamortized cost of
producing properties acquired by some $19 million and $29 million,
respectively, but at June 30 and September 30, 1995, the ceiling amount was
significantly less than the unamortized capitalized costs. ENSERCH believes
that the acquired properties have significant exploration and development
potential and that the unamortized cost of the gas and oil properties acquired
is recoverable from future production. Gas and oil prices are subject to
seasonal and other fluctuations. A decline in prices from March 1996 levels
or other factors, without mitigating circumstances, could cause a future
write-down of capitalized costs and a non-cash charge against income under the
full-cost accounting method cost center ceiling limitation. The Securities
and Exchange Commission has granted a waiver of the full-cost ceiling
limitation on these properties through June 30, 1996.
EEX is currently offering its Rocky Mountain area properties for sale. These
properties were mostly acquired as part of the major acquisition in 1995 and
are being offered for sale because they are not within the core area of EEX's
other properties. Total reserves for the Rocky Mountain properties at
January 1, 1996, as estimated by DeGolyer and MacNaughton, independent
petroleum consultants, were 223 billion cubic feet of natural gas equivalent
(Bcfe), of which 169 Bcfe were proved. Production from these properties in
1995 averaged 40 million cubic feet of natural-gas equivalent per day. The
sale of these properties is expected to be concluded around mid-year 1996.
EEX intends to use the proceeds from the sale to reduce debt.
NATURAL GAS PIPELINE & GPM - Operating income from the natural gas pipeline
& GPM segment for the first quarter this year was $26 million versus
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$34 million for the first quarter of 1995. Operating results for pipeline and
gas processing operations were higher than for the prior first quarter;
however, losses incurred from gas marketing operations more than offset these
improvements.
Pipeline operations, which are conducted through Lone Star Pipeline Company,
had operating income of $33 million, a 13% increase over the prior year's
results of $30 million. Pipeline revenues for the first quarter this year of
$60 million were $8.7 million (17%) higher than for the first quarter of 1995,
with more than half of the revenue improvement attributable to greater volumes
transported to Lone Star Gas Company for delivery to residential and
commercial customers. Heating degree days for this year's first quarter were
about normal but were 26% higher than for the first quarter of 1995. Pipeline
throughput for the first quarter totaled 183 Bcf, 20% greater than the
year-earlier period. The revenue improvement was partially offset by a
$4.0 million increase in the cost of gas lost in transmission and slightly
higher operating expenses.
Gas marketing operations, which are conducted through Enserch Energy Services,
Inc. (EES), had a first quarter operating loss of $11.6 million versus
operating income of $3.7 million for the first quarter of 1995, with the poor
results precipitated by unusual weather patterns and the resulting markets.
The negative margin on gas sales for the first quarter of 1996 was
$5.6 million versus a positive margin of $7.5 million for the 1995 first
quarter. Natural gas marketing sales volumes declined 10% from the first
quarter of 1995 primarily due to the decision to de-emphasize some wholesale
marketing, but revenues were up 30% due to higher gas prices. Operating
expenses of $6.2 million were $2.4 million higher than in the first quarter
last year, principally reflecting costs associated with operations acquired
in 1995.
As part of its natural gas marketing activities, EES enters into forward
contracts principally involving physical delivery of natural gas and
derivative financial instruments, including swaps, options, futures and other
contractual arrangements. These activities involve price commitments into the
future and, therefore, give rise to market risk. At March 31, 1996, natural
gas marketing operations had net commitments to purchase approximately 2.2 Bcf
of natural gas through the year 1998 with offsetting net financial positions
to sell approximately 1.8 Bcf, including commitments to purchase approximately
5.2 Bcf from EEX and financial positions to sell the same quantity. There was
a net unrealized and unrecognized gain of $3.8 million at March 31, 1996 on
these contracts.
First-quarter operating income for natural gas processing operations of
Enserch Processing Company rose substantially from $.9 million in the first
quarter last year to $3.9 million, reflecting an improvement in plant margin
and a higher margin on gas purchased for resale. NGL sales volumes for the
first quarter totaled 1.6 million barrels, 16% higher than in the 1995 first
quarter due to changes in inventory levels. Production volumes were virtually
unchanged from the 1995 first quarter. The average sales price per barrel for
the first quarter of $13.30 was up 9% from the first quarter last year.
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NATURAL GAS DISTRIBUTION - Operating income for Lone Star Gas Company for the
first quarter of $42 million was $7.6 million (22%) higher than the first
quarter last year, with gas sales margin up $9.6 million (11%) from the
year-ago period. The increase in margin reflects residential and commercial
rate improvements and near normal heating weather this year versus the first
quarter of 1995, which experienced unusually mild winter weather. A
significant reduction in the cost of gas lost in transmission also contributed
to the margin improvement. Total gas sales volumes for the first quarter
increased 11% from the 1995 first quarter, with sales volumes to residential
and commercial customers up 14% from last year. Operating expenses of
$60 million were $2.7 million higher than for the 1995 first quarter,
principally due to increased employee compensation and benefit costs.
POWER AND OTHER - ENSERCH's power and other activities had an operating loss
for the first quarter of $.3 million, compared with operating income of
$.3 million for the first quarter last year.
LIQUIDITY AND FINANCIAL RESOURCES - Operating activities for the first quarter
of 1996 provided net cash flows of $90 million, compared with $136 million for
the first quarter of 1995. Income before depreciation and amortization and
deferred income taxes for the first quarter was $12 million higher than for
the first quarter of 1995; however, recoveries of producer settlements, which
are now substantially complete, were $15 million less than the year-earlier
period, and changes in current operating assets and liabilities required cash
of $9 million in the first quarter this year but provided $29 million in the
first quarter last year.
Investing activities required net cash flows of $63 million versus $99 million
in the first quarter of 1995, primarily due to a lower level of capital
spending for exploration and production operations. Also, proceeds from sales
and retirements of property, plant and equipment provided $15 million in the
first quarter this year versus $2 million in the 1995 first quarter.
As a percentage of total capitalization, common shareholders' equity plus
minority interest in subsidiaries was 40.3% at March 31, 1996, virtually
unchanged from year-end 1995. EEX intends to use the proceeds from the sale
of its Rocky Mountain area properties to reduce its debt. At March 31, 1996,
the current ratio was .84 versus .74 at December 31, 1995.
ENSERCH has bank lines in the form of a three-year revolving agreement
totaling $600 million, all unused at March 31, 1996. In addition, EEX has a
$350 million four-year revolving credit agreement, $155 million of which was
unused at March 31, 1996.
Planned property, plant and equipment additions for 1996 total $296 million,
including $187 million for EEX, $43 million for natural gas pipeline & GPM,
$64 million for natural gas distribution and $2 million for other
requirements. The planned expenditures are expected to be funded from
internal cash flow and external financings as required.
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RECENT EVENT - On April 15, 1996, ENSERCH announced that it had entered into
a definitive agreement with Texas Utilities Company (TUC) to merge. As a
result of this strategic action, the ENSERCH business units Lone Star Gas
Company and Lone Star Pipeline Company, the local distribution and pipeline
companies of ENSERCH, and other businesses will become a part of TUC. TUC
will acquire these operations for $1.7 billion, composed of the issuance of
approximately $550 million of TUC common stock and the assumption of
approximately $1.15 billion of net debt and preferred stock. Prior to the
merger, ENSERCH's 83.4% interest in its subsidiary, EEX, will be spun off
to ENSERCH shareholders.
Within a range of a 10% variation above or below the April 12 closing price
of TUC common stock ($39.625 per share), the ENSERCH shareholder will receive
sufficient shares of TUC common stock to provide $8.00 of value. Above or
below the 10% threshold, the value received will move up or down with the
price of TUC common stock. The value of the interest in EEX to be received,
estimated based on EEX's April 12 closing price of $10.25 to be approximately
$15.68 per ENSERCH share, and the value of the TUC shares to be received
represented a total estimated value of $23.68 per share on April 12. The
final value can not be determined until closing.
The agreement is subject to approval by ENSERCH shareholders and the
Securities and Exchange Commission under the Public Utilities Holding
Companies Act of 1935, a filing with the Railroad Commission of Texas and the
requisite notifications with the Federal Trade Commission and the Department
of Justice under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
The agreement is also subject to a favorable ruling from the Internal Revenue
Service as to the tax-free nature of the distribution of EEX shares.
-10-
<PAGE>
<PAGE>
<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Natural Gas and Oil Exploration and Production Operating Data (Unaudited)
<CAPTION>
Three Months Ended
March 31
-------------------------
1996 1995
---- ----
<S> <C> <C>
Operating Income (in millions) . . . . . . . . . . . . . . $ 4.6 $ .4
====== ======
Revenues (in millions) . . . . . . . . . . . . . . . . . . $ 75.4 $ 41.7
====== ======
Sales Volumes
Natural gas (MMcf) . . . . . . . . . . . . . . . . . . . 24,971 14,361
Oil and condensate (MBbls) . . . . . . . . . . . . . . . 1,082 533
Average Sales Price
Natural gas (per Mcf). . . . . . . . . . . . . . . . . . $ 2.17 $ 2.22
Oil and condensate (per Bbl) . . . . . . . . . . . . . . 17.90 16.79
Net Wells
Drilled . . . . . . . . . . . . . . . . . . . . . . . . . 18 15
Productive . . . . . . . . . . . . . . . . . . . . . . . . 17 10
Data in Equivalent Energy Content (per Mcfe)(a)
Production revenue . . . . . . . . . . . . . . . . . . . . $ 2.31 $ 2.32
Production and operating costs (b) . . . . . . . . . . . . .63 .50
Depreciation and amortization . . . . . . . . . . . . . . 1.01 1.07
<FN>
(a) Oil and natural gas liquids are converted to Mcf equivalents (Mcfe) on the basis of
one barrel equals 6.0 Mcfe.
(b) Excludes related production, severance and ad valorem taxes.
</FN>
</TABLE>
<TABLE>
OPERATING INCOME RECONCILIATION FROM EEX TO ENSERCH SEGMENT
<CAPTION>
Three Months Ended
March 31
-------------------------
1996 1995
------ ------
<S> <C> <C>
Operating income of EEX. . . . . . . . . . . . . . . . . . . $ 5.7 $ .6
Amortization of costs capitalized by ENSERCH not incurred
by EEX. . . . . . . . . . . . . . . . . . . . . . . . . . . (.1)
Effects of intercompany lease transactions . . . . . . . . . (1.0)
Activities not conducted through EEX . . . . . . . . . . . . (.1) (.1)
------ ------
Operating income of ENSERCH's natural gas and oil
exploration and production segment . . . . . . . . . . . . $ 4.6 $ .4
====== ======
</TABLE>
-11-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Natural Gas Pipeline & Gathering, Processing and Marketing Operating Data (Unaudited)
Three Months Ended
March 31
-------------------------
1996 1995
------ ------
<S> <C> <C>
Operating Income (Loss)(in millions)
Pipeline. . . . . . . . . . . . . . . . . . . . . . . . $ 33.5 $ 29.7
Natural Gas Marketing . . . . . . . . . . . . . . . . . (11.6) 3.7
Natural Gas Processing. . . . . . . . . . . . . . . . . 3.9 .9
------ ------
Total. . . . . . . . . . . . . . . . . . . . . . . . $ 25.8 $ 34.3
====== ======
Revenues (in millions)
Pipeline (a). . . . . . . . . . . . . . . . . . . . . . $ 59.8 $ 51.1
Natural Gas Marketing . . . . . . . . . . . . . . . . . 252.4 194.1
Natural Gas Processing - Natural gas liquids (b). . . . 21.0 16.5
Other (c) . . . . . . . . . . . . . . . . . . . . . . . 11.7 7.9
------ ------
Total revenues. . . . . . . . . . . . . . . . . . . $344.9 $269.6
====== ======
Volumes
Pipeline throughput (Bcf) . . . . . . . . . . . . . . . 182.7 152.8
Natural Gas Marketing (Bcf) . . . . . . . . . . . . . . 97.6 109.0
Natural Gas Processing (MMBbls) . . . . . . . . . . . . 1.6 1.4
Average Sales Prices
Natural Gas Marketing (per Mcf) . . . . . . . . . . . . $ 2.59 $ 1.80
Natural Gas Liquids (per Bbl) . . . . . . . . . . . . . 13.30 12.15
<FN>
(a) Includes transportation services for affiliates and third-parties and other miscellaneous revenues.
(b) Represents revenues from sales of plant production.
(c) Includes revenues from natural-gas products purchased for resale, gathering fees and other miscellaneous
revenues.
</FN>
</TABLE>
-12-
<PAGE>
<PAGE>
<TABLE>
ENSERCH CORPORATION AND SUBSIDIARY COMPANIES
Natural Gas Distribution Operating Data (Unaudited)
<CAPTION>
Three Months Ended
March 31
--------------------------
1996 1995
---- ----
<S> <C> <C>
Operating Income (in millions) . . . . . . . . . . . . . $ 42.2 $ 34.6
====== ======
Natural Gas Sales Revenues by Customer (in millions)
Residential & commercial . . . . . . . . . . . . . . . $334.7 $328.2
Industrial . . . . . . . . . . . . . . . . . . . . . . 11.2 20.0
Electric generation. . . . . . . . . . . . . . . . . . 10.4 9.7
------ ------
Total gas sales revenues . . . . . . . . . . . . . . 356.3 357.9
Gas transportation revenues (a). . . . . . . . . . . . . 3.7 3.1
Other revenues . . . . . . . . . . . . . . . . . . . . . 2.3 2.2
------ ------
Total revenues . . . . . . . . . . . . . . . . . . . $362.3 $363.2
====== ======
Natural Gas Sales Volumes by Customer (Bcf)
Residential & commercial . . . . . . . . . . . . . . . 62.2 54.3
Industrial . . . . . . . . . . . . . . . . . . . . . . 3.0 4.9
Electric generation. . . . . . . . . . . . . . . . . . 2.8 2.3
------ ------
Total gas sales volumes. . . . . . . . . . . . . . . 68.0 61.5
====== ======
Natural Gas Sales Revenues (per Mcf)
Residential & commercial . . . . . . . . . . . . . . . $ 5.38 $ 6.04
Industrial . . . . . . . . . . . . . . . . . . . . . . 3.74 4.07
Electric generation. . . . . . . . . . . . . . . . . . 3.64 4.31
Natural Gas Purchase Cost (per Mcf). . . . . . . . . . . $ 3.74 $ 4.20
Heating Degree Days. . . . . . . . . . . . . . . . . . . 1,458 1,158
<FN>
(a) Represents the portion of transportation revenues attributable to the distribution system. Related
volumes are included within Natural Gas Pipeline & Gathering, Processing and Marketing statistics.
</FN>
</TABLE>
-13-
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
<TABLE>
(a) The Annual Meeting of Shareholders was held on May 14, 1996. All
of the nominees for director, as listed in the Corporation's proxy
statement, were elected with the following vote:
<CAPTION>
Shares Broker
Voted Shares Non-
"For" "Withheld" Votes
---------- ---------- --------
<S> <C> <C> <C>
D. W. Biegler 58,012,031 427,894 0
Frederick S. Addy 58,049,668 390,257 0
B. A. Bridgewater, Jr. 58,043,610 396,315 0
Odie C. Donald 58,021,603 418,322 0
Marvin J. Girouard 58,039,440 400,485 0
J. M. Haggar, Jr. 58,016,857 423,068 0
Thomas W. Luce, III 58,032,828 407,097 0
W. C. McCord 57,925,470 514,455 0
Diana S. Natalicio 58,042,873 397,052 0
</TABLE>
The appointment of Deloitte & Touche LLP as independent auditors of the
Corporation was approved by the following vote:
Shares Shares Broker
Voted Voted Shares Non-
"For" "Against" "Abstaining" Votes
58,095,932 152,124 191,870 0
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EXHIBIT (15) - Letter of Deloitte & Touche LLP dated
May 14, 1996, regarding unaudited
interim financial statements.
(b) Reports on Form 8-K
Current Report on Form 8-K dated January 16, 1996. (News Release
dated January 16, 1996: Fourth Quarter Indications; Progress on
Deep Water Projects.)
Current Report on Form 8-K dated March 26, 1996. (Rights Agreement
dated March 26, 1996 between ENSERCH Corporation and Harris Trust
Company of New York.)
-14-
<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: May 14, 1996 By /s/ M. E. Rescoe
---------------------------
M. E. Rescoe, Senior Vice
President, Finance and
Chief Financial Officer
Date: May 14, 1996 By /s/ J. W. Pinkerton
---------------------------
J. W. Pinkerton,
Vice President and Controller,
Chief Accounting Officer
-15-
<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 March 31, 1996 and 1995, as
indicated in our report dated May 1, 1996; 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 March 31, 1996, is
incorporated by reference 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, No. 33-52525 and No. 33-61635 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
May 14, 1996
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000033015
<NAME> ENSERCH CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1996
<CASH> 12,175
<SECURITIES> 0
<RECEIVABLES> 317,925
<ALLOWANCES> 0
<INVENTORY> 80,450
<CURRENT-ASSETS> 548,883
<PP&E> 4,442,088
<DEPRECIATION> 1,727,369
<TOTAL-ASSETS> 3,397,689
<CURRENT-LIABILITIES> 652,156
<BONDS> 905,150
150,000
175,000
<COMMON> 645,783
<OTHER-SE> 97,885
<TOTAL-LIABILITY-AND-EQUITY> 3,397,689
<SALES> 0
<TOTAL-REVENUES> 678,643
<CGS> 0
<TOTAL-COSTS> 608,251
<OTHER-EXPENSES> 782
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,656
<INCOME-PRETAX> 46,954
<INCOME-TAX> 17,170
<INCOME-CONTINUING> 29,777
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,777
<EPS-PRIMARY> .39
<EPS-DILUTED> .39
</TABLE>
