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SECURITIES AND EXCHANGE COMMISSION
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WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended June 30, 1995
Commission File No. 1-8157
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PANHANDLE EASTERN CORPORATION
(Exact name of registrant as specified in its charter)
A Delaware Corporation
(State of Incorporation or Organization)
74-2150460
(IRS Employer Identification No.)
5400 Westheimer Court, P.O. Box 1642, Houston, Texas 77251-1642
(Address of principal executive offices, including zip code)
(713) 627-5400
(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:
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Class Outstanding at July 31, 1995
-------------------------- ----------------------------
Common Stock, $1 par value 149,738,305
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - Unaudited
Panhandle Eastern Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Periods Ended June 30
Three Months Six Months
------------------ ------------------
Millions, except per share amounts 1995 1994 1995 1994
- ---------------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenues
Sales of natural gas and
petroleum products $ 918.3 $ 779.4 $1,730.0 $1,522.0
Transportation and storage of
natural gas 356.4 341.7 757.9 711.4
Other 8.6 23.7 27.5 59.1
-------- -------- -------- --------
Total (Note 3) 1,283.3 1,144.8 2,515.4 2,292.5
-------- -------- -------- --------
Costs and Expenses
Natural gas and petroleum
products purchased 851.3 724.0 1,610.9 1,418.2
Operating and maintenance 134.6 132.7 275.9 266.6
General and administrative 45.1 60.0 108.3 128.4
Depreciation and amortization 69.5 65.1 138.3 130.3
Miscellaneous taxes 21.8 17.1 44.3 39.2
-------- -------- -------- --------
Total 1,122.3 998.9 2,177.7 1,982.7
-------- -------- -------- --------
Operating Income 161.0 145.9 337.7 309.8
-------- -------- -------- --------
Other Income and Deductions
Equity in earnings of
unconsolidated affiliates 9.7 10.6 33.3 12.5
Other income, net of deductions 4.2 0.8 3.5 2.3
-------- -------- -------- --------
Total 13.9 11.4 36.8 14.8
-------- -------- -------- --------
Gross Income 174.9 157.3 374.5 324.6
Interest Expense 62.6 60.4 123.4 118.6
-------- -------- -------- --------
Income before Income Tax 112.3 96.9 251.1 206.0
Income Tax 44.8 40.8 99.5 85.1
-------- -------- -------- --------
NET INCOME $ 67.5 $ 56.1 $ 151.6 $ 120.9
======== ======== ======== ========
Average Common Shares Outstanding 149.5 148.6 149.3 148.3
======== ======== ======== ========
Earnings per Common Share $ 0.45 $ 0.38 $ 1.02 $ 0.82
======== ======== ======== ========
Dividends per Common Share $ 0.225 $ 0.21 $ 0.435 $ 0.42
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
2<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
Panhandle Eastern Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
Millions 1995 1994
- -------- --------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 48.3 $ 33.3
Accounts and notes receivable, net 426.3 368.6
Inventory and supplies 131.6 124.1
Other (Notes 3 and 7) 230.2 285.2
--------- ---------
Total 836.4 811.2
--------- ---------
Investments
Affiliates 164.7 160.1
Other 72.6 72.7
--------- ---------
Total 237.3 232.8
--------- ---------
Plant, Property and Equipment
Original cost 8,151.2 8,039.9
Accumulated depreciation and amortization (3,152.9) (3,032.1)
--------- ---------
Net plant, property and equipment 4,998.3 5,007.8
--------- ---------
Deferred Charges
Goodwill, net 336.6 342.4
Prepaid pension 249.1 239.8
Other (Notes 3 and 7) 789.6 873.5
--------- ---------
Total 1,375.3 1,455.7
--------- ---------
TOTAL ASSETS $ 7,447.3 $ 7,507.5
========= =========
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
3<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
Panhandle Eastern Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
Millions, except per share amounts 1995 1994
- ---------------------------------- --------- ------------
<S> <C> <C>
Current Liabilities
Long-term debt due within one year $ 22.4 $ 4.1
Notes payable 14.3 -
Accounts payable 254.2 349.4
Rate refund provisions (Note 3) 57.5 60.2
Accrued interest 71.7 65.0
Taxes payable 54.9 53.8
Other (Notes 3 and 7) 353.6 413.6
-------- --------
Total 828.6 946.1
-------- --------
Deferred Liabilities and Credits
Deferred income tax (Note 4) 1,234.3 1,184.5
Deferred revenue - liquefied
natural gas project 65.3 69.7
Other (Notes 3 and 7) 813.2 908.3
-------- --------
Total 2,112.8 2,162.5
-------- --------
Long-term Debt 2,373.7 2,363.7
-------- --------
Commitments and Contingent Liabilities
(Notes 3, 5, 7 and 8)
Common Stockholders' Equity
Common stock, 149.7 million (1995) and
149.1 million (1994) shares issued and
outstanding, $1 par value per share 149.7 149.1
Paid-in capital 2,208.4 2,199.8
Retained earnings (deficit) (225.9) (313.7)
-------- --------
Total (Note 6) 2,132.2 2,035.2
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,447.3 $7,507.5
======== ========
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
4<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
Panhandle Eastern Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
--------------------
Millions 1995 1994
- -------- ------- -------
<S> <C> <C>
Operating Activities
Net income $ 151.6 $ 120.9
Adjustments to reconcile net income to operating
cash flows:
Depreciation and amortization 138.3 130.3
Deferred income tax expense 53.0 42.4
Earnings of unconsolidated affiliates,
net of distributions (5.0) (7.1)
Net pension benefit (10.9) (10.0)
Other non-cash items in net income (13.3) (15.7)
Net change in operating assets
and liabilities (85.3) 53.3
------- -------
Net Cash Flows Provided by Operating Activities 228.4 314.1
------- -------
Investing Activities
Additions to plant, property and equipment (132.5) (287.5)
Net investment decreases (increases) 0.3 (1.0)
Property retirements and other 10.7 13.6
------- -------
Net Cash Flows Used in Investing Activities (121.5) (274.9)
------- -------
Financing Activities
Retirement of debt (185.1) (54.0)
Issuance of debt 200.0 60.0
Net increase (decrease) in notes payable 14.3 (14.7)
Common stock issuance 8.4 11.9
Dividends paid (63.8) (51.4)
Other (65.7) -
------- -------
Net Cash Flows Used in Financing Activities (91.9) (48.2)
------- -------
Net Change in Cash
Increase (decrease) in cash and cash equivalents 15.0 (9.0)
Cash and cash equivalents, beginning of period 33.3 77.6
------- -------
Cash and Cash Equivalents, End of Period $ 48.3 $ 68.6
======= =======
Supplemental Disclosures
Cash paid for interest (net of amount capitalized) $ 108.8 $ 98.9
Cash paid for income tax 43.3 49.8
</TABLE>
See accompanying notes to consolidated financial statements,
including Note 2 for the restatement resulting from a merger.
5<PAGE>
<PAGE>
PANHANDLE EASTERN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. References
Panhandle Eastern Corporation (PEC) and its subsidiaries (the Company)
are involved in the interstate transportation and storage of natural
gas, as well as the gathering, processing, marketing and intrastate
transportation of natural gas, natural gas liquids (NGLs) and crude oil.
The interstate gas transmission operations of Texas Eastern Transmission
Corporation (TETCO), Algonquin Gas Transmission Company (Algonquin),
Panhandle Eastern Pipe Line Company (PEPL) and Trunkline Gas Company
(Trunkline), and the liquefied natural gas (LNG) facilities of Trunkline
LNG Company (Trunkline LNG), are subject to the rules, regulations and
accounting procedures of the Federal Energy Regulatory Commission
(FERC). Certain amounts for the prior periods have been reclassified
in the consolidated financial statements to conform to the current
presentation.
2. Business Combination
On December 15, 1994, a wholly-owned subsidiary of PEC merged with
Associated Natural Gas Corporation (Associated), and as a result,
Associated became a wholly-owned PEC subsidiary. The merger was
accounted for under the pooling of interests method of accounting for
a business combination and, accordingly, PEC's 1994 consolidated
financial statements, where applicable, were restated to include the
accounts of Associated.
3. Natural Gas Revenues and Regulatory Matters
When rate cases are pending final FERC approval, a portion of revenues
collected by each natural gas pipeline is subject to possible refunds.
The Company has established adequate reserves where required for such
cases. The following is a summary of pending rate cases before FERC and
certain regulatory matters.
FERC Order 636 and Merchant Services
During 1993, the Company's interstate natural gas pipelines began
providing restructured services pursuant to FERC Order 636. This order,
which is on appeal to the courts, requires pipeline service
restructuring that "unbundles" sales, transportation and storage
services. Order 636 provides for the use of the straight fixed-variable
(SFV) rate design, which assigns return on equity, related taxes and
other fixed costs to the reservation component of rates. In addition,
Order 636 allows pipelines to recover eligible costs resulting from
implementation of the order (transition costs).
6<PAGE>
<PAGE>
TETCO's final and nonappealable Order 636 settlement, implemented on
August 1, 1994, provides for the recovery of certain transition costs
through volumetric and reservation charges through 2002. Pursuant to
the settlement, TETCO will absorb a certain portion of the transition
costs, the amount of which is dependent upon natural gas prices and
deliverability levels. In 1993, the Company established a provision to
reflect the impact of the settlement. PEPL's and Trunkline's transition
cost recoveries, which are subject to certain challenges pending before
FERC, will occur over the next three years.
At June 30, 1995 and December 31, 1994, the Company's interstate
pipelines had recorded approximately $50 million and $265 million
(1995), and $35 million and $300 million (1994) of current and long-term
regulatory assets, respectively, representing transition costs incurred
or estimated to be incurred that will be recovered. The Company had
estimated current and long-term liabilities recorded of approximately
$90 million and $85 million at June 30, 1995, and $125 million and
$105 million, respectively, at December 31, 1994 related to Order 636
transition costs.
In the past, during the normal course of business, the Company's
interstate pipelines entered into certain gas purchase contracts
containing take-or-pay provisions, which may expose the Company to
financial risk. PEPL and Trunkline are currently collecting certain
take-or-pay settlement costs through volumetric surcharges with interest
over a period extending through 1997.
The U.S. Department of the Interior announced its intention to seek
additional royalties from gas producers as a result of payments received
by such producers in connection with past take-or-pay settlements, and
buyouts and buydowns of gas sales contracts with natural gas pipelines.
The Company's pipelines, with respect to certain producer contract
settlements, may be contractually required to reimburse or, in some
instances, to indemnify producers against such royalty claims. If the
Company's pipelines ultimately have to reimburse or indemnify the
producers, the Company's pipelines will file with FERC to recover a
portion of these costs from pipeline customers. The potential liability
of the producers to the government and of the pipelines to the producers
involves complex issues of law and fact which are likely to take a
substantial period of time to resolve.
The Company believes the exposure associated with gas purchase contract
commitments and the termination of the Company's pipeline merchant
services is substantially mitigated by transition cost recoveries
pursuant to TETCO's settlement, Order 636 and other mechanisms. As a
result, the Company believes that Order 636 transition cost issues and
take-or-pay settlement matters will not have a material adverse effect
on future consolidated results of operations or financial position.
7<PAGE>
<PAGE>
Jurisdictional Transportation and Sales Rates
PEPL - On April 1, 1992 and November 1, 1992, PEPL placed into effect,
subject to refund, general rate increases incorporating the SFV rate
design. Hearings in these rate proceedings were completed in the first
half of 1994. The FERC issued an order on May 25, 1995 on the earlier
rate proceeding and PEPL has requested rehearing of that order. The
latter rate proceeding is pending FERC review of the initial
Administrative Law Judge decision.
Effective April 1, 1989, PEPL placed into effect, subject to refund,
sales and transportation rates reflecting a restructuring of rates,
including seasonal rate structures. PEPL and others are appealing
various FERC orders related to these rates. On December 7, 1994, FERC
approved a settlement agreement with a majority of the customers which
resolves refund matters and terminates other actions for the period
these rates were effective for the settling parties.
Trunkline - On September 1, 1994, Trunkline placed into effect, subject
to refund, a general rate increase as a result of a filing made in
accordance with terms of a rate case settlement in 1993. An offer of
settlement, supported by Trunkline's customers, was approved by FERC on
July 6, 1995, subject to rehearing.
Other - The Company's pipelines, pursuant to FERC requirements,
requested FERC approval to record the impact of adopting Statement of
Financial Accounting Standards (Accounting Standard) No. 109,
"Accounting for Income Taxes," including the recognition of a portion
of the impact as an increase to stockholders' equity. The FERC
accounting branch has denied approval of certain of these requests,
pending future rate proceedings, and the Company's pipelines, where
approval has been denied, have filed for rehearing. The Company
believes the ultimate resolution of this matter will not have a material
adverse effect on consolidated financial position.
4. Income Tax
The Company's investment tax credit (ITC) carryforward of $71.7 million
at December 31, 1994, which is expected to be fully utilized, will begin
to expire in 1996 and will be extinguished in 2002 if not utilized
sooner. The alternative minimum tax credit carryforward of
$78.1 million at December 31, 1994 can be carried forward indefinitely.
5. Other Contingencies
TEPPCO Partners, L.P. - TEPPCO Partners, L.P. is a master limited
partnership (MLP) that owns and operates a petroleum products pipeline.
The Company has a 10.45% ownership interest in the MLP. A subsidiary
partnership of the MLP has $349.5 million in First Mortgage Notes
outstanding with recourse to the general partner, a subsidiary of PEC.
These notes have annual principal payments due through 2010. In the
opinion of management, the probability that the subsidiary of PEC will
be required to perform under this recourse provision is remote.
8<PAGE>
<PAGE>
Petrolane Incorporated (Petrolane) - In connection with the sale of
Petrolane in 1989, Texas Eastern Corporation (TEC) agreed to indemnify
Petrolane against certain obligations for guaranteed leases and
environmental matters. Certain of the lease obligations relate to
Petrolane's divestiture of supermarket operations prior to its
acquisition by TEC and as of December 31, 1994 totaled approximately
$84.3 million over the remaining terms of the leases, which expire in
2006. In the opinion of management, the probability that TEC will be
required to perform under this indemnity provision is remote.
Petrolane was named in a suit filed by the city of Fresno, California
(the City) in the U.S. District Court for the Eastern District of
California on February 18, 1993 seeking contribution from 22 parties for
assessment and cleanup costs related to the Fresno Sanitary Landfill.
A tentative settlement has been reached between Petrolane and the City
resolving all claims. The amount of the settlement will not have a
material adverse effect on the Company's consolidated financial position
or results of operations.
Northern Border Pipeline Company (Northern Border) - Under the terms of
a settlement related to a transportation agreement between PEPL and
Northern Border, PEPL guarantees payment to Northern Border under a
transportation agreement by an affiliate of Pan-Alberta Gas Limited.
The transportation agreement requires estimated total payments of
$184 million for the years 1995 through 2001. In the opinion of
management, the probability that PEPL will be required to perform under
this guarantee is remote.
6. Stockholders' Equity
Under the most restrictive covenants contained in the Company's debt
agreements, $804.5 million of PEC's consolidated common stockholders'
equity was available for the payment of dividends at June 30, 1995.
7. Environmental Matters
TETCO - TETCO is currently conducting PCB (polychlorinated biphenyl)
characterization (assessment) and cleanup programs at certain of its
compressor station sites under conditions stipulated by a U.S. Consent
Decree. The programs include on- and off-site characterization,
installation of on-site source control equipment and groundwater
monitoring wells, and on- and off-site cleanup work. TETCO expects to
complete the programs at up to 89 sites in as many as 14 states by the
year 2000.
In addition, TETCO has been conducting PCB remediation (cleanup) work
at certain on- and off-site areas pursuant to separate agreements with
the states of Pennsylvania and New Jersey. These agreements generally
impose cleanup levels that are more stringent than those required by the
U.S. Consent Decree.
9<PAGE>
<PAGE>
In 1987, the Commonwealth of Kentucky instituted suit in state court
against TETCO, alleging improper disposal of PCBs at TETCO's three
compressor station sites in Kentucky. This suit, which is still
pending, seeks penalties for violations of Kentucky environmental
statutes. The Company previously established a reserve for potential
fines and penalties. In 1991, TETCO and the Commonwealth executed a
consent order in which TETCO agreed to perform site assessments at its
sites in Kentucky, and this work has been substantially completed.
TETCO completed remediation of one of its Kentucky sites in 1994 and is
remediating another site in 1995.
At June 30, 1995 and December 31, 1994, TETCO had current and long-term
liabilities recorded of $55.1 million and $275.7 million (1995), and
$56.4 million and $289.1 million (1994), respectively, for remaining
estimated cleanup costs. These cost estimates represent gross cleanup
costs expected to be incurred by TETCO, have not been discounted or
reduced by customer recoveries and do not include fines, penalties or
third-party claims. TETCO is recovering 57.5% of cleanup costs in rates
pursuant to a stipulation and agreement approved by FERC in 1992. At
June 30, 1995 and December 31, 1994, TETCO had current and long-term
regulatory assets recorded of $20 million and $166 million (1995), and
$18.6 million and $177.1 million (1994), respectively, representing
costs to be recovered.
TETCO, as well as certain other PEC subsidiaries in some of the cases,
are defendants in several private plaintiff suits in various courts.
These suits seek relief for actual and punitive damages that allegedly
resulted from the release of PCBs and other hazardous substances in
violation of federal and state laws. The Company is continuing to
defend itself vigorously in these suits.
PEPL and Trunkline - The Company has identified environmental
contamination at up to 53 sites on the PEPL and Trunkline systems and
is undertaking remediation programs at these sites. The contamination
resulted from the past use of lubricants containing PCBs and the prior
use of wastewater collection facilities and other on-site disposal
areas. Soil and sediment testing, to date, has detected no significant
off-site contamination. The Company has communicated with the U.S.
Environmental Protection Agency and appropriate state regulatory
agencies on these matters. The environmental cleanup programs are
expected to continue until 2002.
At June 30, 1995 and December 31, 1994, the Company had undiscounted
liabilities recorded of $71.1 million and $70 million, respectively,
relating to PEPL and Trunkline PCB, wastewater and disposal area cleanup
programs and had regulatory assets recorded of $81.4 million and
$82.4 million, respectively, representing costs to be recovered from
customers.
The federal and state cleanup programs are not expected to interrupt or
diminish the Company's ability to deliver natural gas to customers. The
Company believes the ultimate resolution of matters relating to the
cleanup programs will not have a material adverse effect on consolidated
results of operations or financial position.
10
<PAGE>
8. Litigation
In connection with a rupture and fire that occurred on TETCO's 36-inch
natural gas pipeline on March 23, 1994 in Edison, New Jersey, numerous
lawsuits have been filed against TETCO and other defendants in the
Superior Court of New Jersey, Middlesex County, on behalf of hundreds
of individuals seeking compensatory damages for personal injuries and
property losses, as well as punitive damages. The property insurers of
an apartment complex adjacent to the asphalt plant where the rupture
occurred also have filed suit against TETCO and other defendants in
Superior Court seeking to recover approximately $10 million for amounts
paid under the pertinent policies of insurance. TETCO also has been
contacted by hundreds of additional individuals or their attorneys with
claims against TETCO. In addition, Quality Materials, Inc., the owner
of the asphalt plant, has filed suit in the U.S. District Court for the
District of New Jersey against TETCO seeking to recover unspecified
property damages, lost income and punitive damages. TETCO has filed a
counterclaim against Quality Materials, Inc.
The findings of an investigation of the incident by the Company and the
National Transportation Safety Board (NTSB) indicate third-party damage
to be the cause of the rupture. Additionally, an NTSB report found that
TETCO's pipeline operations met or exceeded federal safety regulations.
The Company expects the resolution of these matters will not have a
material adverse effect on consolidated results of operations or
financial position.
The Company is also involved in various other legal actions and claims
arising in the normal course of business. Based upon its current
assessment of the facts and the law, management does not believe that
the outcome of any such action or claim will have a material adverse
effect upon the consolidated financial position of the Company.
However, these actions and claims in the aggregate seek substantial
damages against the Company and are subject to the uncertainties
inherent in any litigation.
9. Fair Presentation
The information as furnished reflects all normal recurring adjustments
that are, in the opinion of management, necessary for a fair
presentation of the Company's financial position as of June 30, 1995,
results of operations for the three and six months ended June 30, 1995
and 1994, and cash flows for the six months ended June 30, 1995 and
1994.
11<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information is provided to facilitate increased understanding
of the 1995 and 1994 interim consolidated financial statements and
accompanying notes presented in Item 1. The discussion of the Company's
"Operating Environment and Outlook" addresses key trends and future plans.
Material period-to-period variances in the consolidated statement of income
are discussed under "Results of Operations." The "Capital Resources, Liquidity
and Financial Position" section analyzes cash flows and financial position.
Throughout these discussions, management addresses items that are reasonably
likely to materially affect future liquidity or earnings.
OPERATING ENVIRONMENT AND OUTLOOK
The changing environment resulting from the restructuring of the natural gas
industry has spurred some industry consolidations and additional growth
opportunities for the Company, particularly in the market and supply services
group. The Company has expanded business opportunities and enhanced
operations in supply-area operations, including processing and storage, while
also continuing to advance interstate natural gas pipeline market-expansion
projects and new services requested by customers. The Company plans to
continue to pursue strategic opportunities that emerge via additional joint
ventures, major projects and acquisitions in both the natural gas transmission
and market and supply services groups.
In the natural gas transmission group, all traditional pipeline sales services
ceased during the fourth quarter of 1994 when Trunkline's unbundled sales
contracts expired. Pipeline earnings have generally become more evenly
distributed throughout the year as a result of the SFV rate design required
by Order 636. The Company's pipelines continue to offer selective discounting
to maximize revenues from existing capacity.
RESULTS OF OPERATIONS
Consolidated net income for the six months ended June 30, 1995 was
$151.6 million, or $1.02 per share on 149.3 million average common shares
outstanding, compared with $120.9 million, or $0.82 per share on 148.3 million
average common shares outstanding, for the same period in 1994.
Operating Income Analysis
Consolidated operating income increased to $337.7 million in the first six
months of 1995 compared with $309.8 million for the same period in 1994.
These results reflect improvements in the Company's natural gas transmission
and market and supply services groups, and a $10.4 million provision reversal
recorded in the second quarter of 1995 associated with the LNG project.
12<PAGE>
<PAGE>
Con solidated Operating Income by Business Group
<TABLE>
<CAPTION>
Six Months Ended June 30
-------------------------------
Millions 1995 1994 % Change
-------- ------ ------ --------
<S> <C> <C> <C>
Natural Gas Transmission
TETCO $155.3 $124.2 25
Algonquin 39.7 37.9 5
PEPL 63.6 75.7 (16)
Trunkline 22.6 25.9 (13)
Other 2.6 2.7 (4)
------ ------ ----
Total 283.8 266.4 7
------ ------ ----
Market and Supply Services
Field Services 36.0 18.9 90
Market Services 8.4 16.4 (49)
ATTCO 4.5 4.0 13
------ ------ ----
Total 48.9 39.3 24
------ ------ ----
Parent and Other 5.0 4.1 22
------ ------ ----
Consolidated Operating Income$337.7 $309.8 9
====== ====== ====
</TABLE>
13<PAGE>
<PAGE>
Operating Data
<TABLE>
<CAPTION>
Six Months Ended June 30
----------------------------
1995 1994 % Change
------ ------ --------
<S> <C> <C> <C>
Natural Gas Pipeline Volumes,
Billion Cubic Feet (Bcf)
Market Area
TETCO 572 567 1
Algonquin 171 145 18
PEPL 325 324 -
Trunkline 188 243 (23)
Eliminations (25) (46) (46)
----- ----- ---
Total 1,231 1,233 -
----- ----- ---
Supply Area
TETCO 51 68 (25)
PEPL 21 21 -
Trunkline 52 57 (9)
----- ----- ---
Total 124 146 (15)
----- ----- ---
Total Volumes 1,355 1,379 (2)
===== ===== ===
Market and Supply Services
Field Services
Natural gas gathered/processed,
Bcf/d(1) 1.7 1.6 6
Natural gas marketed, Bcf/d 0.5 0.2 150
NGLs production, MBbl/d(2) 53.2 48.5 10
Helium production, MMcf/d(3) 1.9 2.0 (5)
Market Services
Natural gas marketed, Bcf/d 3.6 2.8 29
ATTCO
Crude oil pipeline
volumes, MBbl/d 78.2 40.5 93
NGLs pipeline volumes, MBbl/d 16.9 11.6 46
National Methanol Company
Methanol sales, thousand
metric tons 280 392 (29)
MTBE sales, thousand metric tons 338 - -
----------
(1) Billion cubic feet per day.
(2) Thousand barrels per day.
(3) Million cubic feet per day.
</TABLE>
14<PAGE>
<PAGE>
Natural Gas Transmission
Operating income from the natural gas transmission group increased
$17.4 million, or 7%, to $283.8 million in the first six months of 1995
compared with the same period in 1994. This increase was primarily
attributable to new incremental projects on TETCO and Algonquin.
TETCO - Operating income for TETCO increased $31.1 million comparing the first
six months of 1995 with the same period in 1994. Transportation revenue
increased $41.3 million, or 12%, as a result of new incremental projects and
the recovery of transition costs which were offset by a corresponding increase
in operating expenses. Operating expenses, excluding transition costs,
declined due to a $5 million charge to income in 1994 related to the Edison,
New Jersey pipeline rupture and cost-management initiatives in 1995.
Algonquin - Algonquin's operating income increased $1.8 million in the first
six months of 1995 compared with the same period in 1994. Revenues increased
$2.6 million, or 3%, reflecting transportation revenues from new incremental
projects and a $4 million favorable resolution of a regulatory issue recorded
in the first quarter of 1995. Partially offsetting the increase in net
revenues was an $8 million benefit recorded in the second quarter of 1994
related to the settlement of certain rate cases.
PEPL - PEPL's operating income decreased $1.5 million comparing the first six
months of 1995 with the same period in 1994, excluding $10.6 million of
nonrecurring expense reductions recorded in 1994 for the resolution of gas
supply matters. Increased transportation revenue partially offset reduced
storage revenue.
Trunkline - Operating income for Trunkline decreased $3.3 million comparing
the first six months of 1995 with the same period in 1994. Decreased
transportation revenue due to lower volumes attributable to warmer weather
during the first six months of 1995 was partially offset by lower operating
costs. Sales revenue and associated gas purchased costs declined as a result
of the elimination of Trunkline's merchant function in late 1994.
Market and Supply Services
The June 30, 1994 consolidated financial statements have been restated to
include Associated's results for the periods ended March 31, 1994 due to
Associated's fiscal year end of September 30 prior to the merger. Therefore,
operating results for the six months ended June 30, 1995 include only three
months of the heating season, while the comparative 1994 period includes the
entire heating season. This creates some unfavorable operating income
comparisons since this season has historically provided more favorable pricing
and margins.
Operating income for the market and supply services group increased
$9.6 million, or 24%, comparing the first six months of 1995 with the same
period in 1994. The increase of $17.1 million for Field Services was
attributable mainly to higher natural gas processing margins and volumes. In
addition to the effects of the non-comparable periods discussed above, mild
weather, which reduced gas prices and margins on marketed volumes, contributed
to a 49% decrease in operating income for Market Services, despite higher
volumes marketed. Higher crude oil volumes increased operating income for
Associated Transport and Trading Company.
15<PAGE>
<PAGE>
Other Operating Income - Operating income for the LNG Project increased
$1.4 million comparing the first six months of 1995 with the same period in
1994. A $10.4 million provision reversal recorded in the second quarter of
1995 was partially offset by lower LNG tanker charter revenues. Both of the
LNG tankers are under charters that began in the third quarter 1995 and
terminate in the first quarter 1996.
Other Income and Deductions - The increase of $22 million in net other income
in the first six months of 1995 compared with the same period in 1994 was the
result of higher earnings from investments in affiliates. Equity in earnings
from National Methanol Company increased $12.6 million reflecting higher
methanol margins and MBTE (methyl tertiary butyl ether) sales in 1995. Also
contributing to the increase was a $5.1 million increase in earnings from
Midland Cogeneration Venture.
Interest Expense - Interest expense in the first six months of 1995 increased
$4.8 million compared with the same period in 1994, primarily as a result of
higher average debt balances outstanding.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL POSITION
Operating Cash Flow
<TABLE>
<CAPTION>
Six Months Ended
June 30
------------------
Millions 1995 1994
- -------- ------ ------
<S> <C> <C>
Net Cash Flows Provided by
Operating Activities $228.4 $314.1
------ ------
</TABLE>
Historical Analysis - Operating cash flows decreased $85.7 million comparing
the six-month period in 1995 to the same period in 1994. This decrease
reflects increased net cash outflows related to transition cost payments and
recoveries, and increases in accounts receivable, partially offset by higher
1995 earnings.
Order 636 Transition Costs - With implementation of Order 636 and the
elimination of pipeline merchant services, the Company's natural gas pipelines
are incurring certain costs related to the transition, primarily TETCO's gas
purchase contract commitments. At June 30, 1995, TETCO's gross commitments
under gas purchase contracts that do not contain market-sensitive pricing
provisions were approximately $135 million, $110 million, $90 million,
$65 million and $25 million for the years 1995 through 1999, respectively,
with no significant amounts thereafter. These estimates reflect significant
assumptions regarding deliverability and escalation clauses.
16<PAGE>
<PAGE>
TETCO's final and nonappealable Order 636 settlement, implemented on August 1,
1994, provides for the recovery of certain transition costs through volumetric
and reservation charges through 2002. Pursuant to the settlement, TETCO will
absorb a certain portion of the transition costs, the amount of which is
dependent upon natural gas prices and deliverability levels. In 1993, the
Company established a provision to reflect the impact of the settlement.
PEPL's and Trunkline's transition cost recoveries, which are subject to
certain challenges pending before FERC, will occur over the next three years.
See Note 3 of the Notes to Consolidated Financial Statements.
During the next two to three years, above-market gas purchase contract
payments by TETCO are expected to exceed transition cost collections from
customers. Net cash receipts related to transition costs are expected to
occur in periods thereafter. Cash requirements related to transition costs
will be funded by cash from operations and/or available credit facilities.
The Company believes the exposure associated with gas purchase contract
commitments and the termination of the Company's pipeline merchant services
are substantially mitigated by transition cost recoveries pursuant to TETCO's
settlement, Order 636 and other mechanisms.
Environmental Matters - The Company believes it will be able to fund the
TETCO, PEPL and Trunkline PCB and other cleanup program costs from recoveries
from customers and other cash flows. See Note 7 of the Notes to Consolidated
Financial Statements.
Litigation - In connection with a rupture and fire that occurred on TETCO's
36-inch natural gas pipeline on March 23, 1994 in Edison, New Jersey, numerous
lawsuits have been filed against TETCO and other defendants in the Superior
Court of New Jersey, Middlesex County, on behalf of hundreds of individuals
seeking compensatory damages for personal injuries and property losses, as
well as punitive damages. The property insurers of an apartment complex
adjacent to the asphalt plant where the rupture occurred also have filed suit
against TETCO and other defendants in Superior Court seeking to recover
approximately $10 million for amounts paid under the pertinent policies of
insurance. TETCO has also been contacted by hundreds of additional
individuals or their attorneys with claims against TETCO. In addition,
Quality Materials, Inc., the owner of the asphalt plant, has filed suit in the
U.S. District Court for the District of New Jersey against TETCO seeking to
recover unspecified property damages, lost income and punitive damages. TETCO
has filed a counterclaim against Quality Materials, Inc.
The findings of an investigation of the incident by the Company and the NTSB
indicate third-party damage to be the cause of the rupture. Additionally, an
NTSB report found that TETCO's pipeline operations met or exceeded federal
safety regulations.
Other - The Company expects to generate sufficient future taxable income from
operations to fully utilize deferred tax assets, net of valuation allowance,
including the ITC carryforward. However, if needed, the Company could
implement tax-planning strategies to accelerate approximately $140 million of
taxable income prior to expiration of the ITC.
17<PAGE>
<PAGE>
On September 1, 1994, Trunkline placed into effect, subject to refund, a
general rate increase as a result of a filing made in accordance with terms
of a rate case settlement in 1993. An offer of settlement, supported by
Trunkline's customers, was approved by FERC on July 6, 1995, subject to
rehearing.
See Notes 3 and 5 of the Notes to Consolidated Financial Statements for a
discussion of certain other regulatory proceedings and other contingencies.
The Company believes the regulatory, environmental and legal issues discussed
above will not have a material adverse effect on consolidated results of
operations, financial position or liquidity. During the next 12 months, cash
requirements for operations are expected to be funded by cash from operations,
debt issuances, periodic sales of trade receivables with limited recourse
and/or available credit facilities.
Investing Cash Flow
<TABLE>
<CAPTION>
Six Months Ended
June 30
-- ---------------------
Millions 1995 1994
- -------- ------ ------
<S> <C> <C>
Net Cash Flows Used in Investing Activities $121.5 $274.9
------ ------
</TABLE>
Capital Expenditures - Capital expenditures totaled $132.5 million in the
first six months of 1995, compared with $287.5 million for the same period in
1994. Expenditures in 1994 included the purchase of certain intrastate
natural gas pipeline, storage and processing facilities in south Texas for
more than $100 million.
Capital expenditures for 1995 are expected to approximate $465 million, with
approximately 55% for the natural gas transmission group and 45% for the
market and supply services group. Expenditures for market-expansion projects
will total approximately $260 million in 1995, including costs to place in
service additional firm transportation for the Company's natural gas
transmission group. Also included are costs of additional facilities which
will enable the Company's market and supply services group to provide expanded
services for natural gas producers and other customers in the Gulf Coast and
Mid-Continent regions. Capital expenditures are being funded by cash from
operations, debt issuances and/or available credit facilities.
In addition, the Company is pursuing a proposed joint pipeline project along
with several partners to access natural gas reserves located near offshore
Nova Scotia. This project, the Maritimes and Northeast Pipeline Project, is
planned to be in operation in 1999. The Company, along with several other
international energy companies, is also participating in the development of
an integrated gas and power project to be located near Aguaytia, Peru.
18<PAGE>
<PAGE>
The Company has submitted plans to the appropriate state and/or federal
agencies in order to fully comply with the Clean Air Act Amendments of 1990
(the Amendments). While regulatory review of these plans is currently
underway, the Company estimates that capital expenditures necessary to comply
with the requirements of the Amendments and associated regulations are
approximately $50 million, with an estimated $20 million to be spent in 1995.
Management believes any expenditures necessary will be eligible for recovery
in rates.
Financing Cash Flow
<TABLE>
<CAPTION>
Six Months Ended
June 30
- -------------------
Millions 1995 1994
- -------- ----- -----
<S> <C> <C>
Net Cash Flows Used in Financing Activities $91.9 $48.2
----- -----
</TABLE>
Debt and Credit Facilities - In April 1995, PEC issued $100 million of 30-year
debentures bearing interest at 8 5/8%. In May 1995, PEC issued $100 million
of 10-year notes bearing interest at 7.25%. PEC has a variable-rate, bank
credit agreement that permits PEC to borrow up to $600 million. PEPL and
TETCO also have variable-rate, bank credit agreements that permit these
subsidiaries to borrow up to $200 million on a combined basis. At June 30,
1995, there were no amounts outstanding under any of these agreements.
Stockholders Equity - The board of directors increased the quarterly dividend
on common stock from $0.21 to $0.225 per common share effective with the 1995
second quarter.
Financing Requirements - Dividends and debt repayments for the next 12 months,
along with operating and investing requirements, are expected to be funded by
cash from operations, debt issuances and/or available credit facilities. As
of the date of this report, PEC, TETCO and PEPL each have effective shelf
registration statements with the Securities and Exchange Commission for the
issuance of $100 million each of unsecured debt securities.
Accounting Standards
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," issued in March 1995,
will be implemented by the Company in the first quarter of 1996. This
standard addresses the accounting for the recognition and measurement of
impairment losses for long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used. This standard also
addresses the accounting for long-lived assets and certain identifiable
intangibles to be disposed of.
The Company does not expect Accounting Standard No. 121 to have a significant
effect on consolidated results of operations or financial position upon
adoption.
19<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Notes 3, 5, 7 and 8 of the Notes to Consolidated Financial Statements in
Part I of this Report, which are incorporated herein by reference. See also
Item 3 of PEC's Annual Report on Form 10-K for the year ended
December 31, 1994.
Item 4. Submission of Matters to a Vote of Security Holders
The 1995 Annual Meeting of Stockholders of PEC was held on April 26, 1995.
The only matter submitted to a vote of stockholders was the election of four
directors for three-year terms expiring at the 1998 Annual Meeting. As a
result of voting by stockholders present in person or by proxy,
132,490,728 shares of common stock were cast in favor of Charles W.
Duncan, Jr. and 2,321,519 were withheld. With respect to Harry E. Ekblom,
132,502,793 shares were cast in favor, and 2,309,453 were withheld. Dennis
Hendrix received 132,500,212 shares in favor and 2,312,034 were withheld.
Ralph S. O'Connor received 132,496,486 shares in favor, with 2,315,760 shares
withheld.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit Number Description
27 Financial Data Schedule
The total amount of securities of the Registrant or its subsidiaries
authorized under any instrument with respect to long-term debt not filed as
an Exhibit does not exceed 10% of the total assets of the Registrant and its
subsidiaries on a consolidated basis. The Registrant agrees, upon request of
the Securities and Exchange Commission, to furnish copies of any or all of
such instruments.
(b) Reports on Form 8-K
A Current Report on Form 8-K dated April 11, 1995 was filed under Item 5,
"Other Events" and Item 7, "Financial Statements, Pro Forma Financial
Information and Exhibits" to report an underwriting agreement entered into for
the public offering of certain debentures.
A Current Report on Form 8-K dated May 16, 1995 was filed under Item 5, "Other
Events" and Item 7, "Financial Statements, Pro Forma Financial Information and
Exhibits" to report an underwriting agreement entered into for the public
offering of certain notes.
20<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned duly authorized officer and chief accounting officer.
PANHANDLE EASTERN CORPORATION
(Registrant)
/s/ Sandra P. Meyer
-------------------------------
Sandra P. Meyer, Vice President
and Controller
Date: August 11, 1995
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Panhandle Eastern Corporation Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000351696
<NAME> PANHANDLE EASTERN CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 48,300
<SECURITIES> 0
<RECEIVABLES> 426,300
<ALLOWANCES> 0
<INVENTORY> 131,600
<CURRENT-ASSETS> 836,400
<PP&E> 8,151,200
<DEPRECIATION> 3,152,900
<TOTAL-ASSETS> 7,447,300
<CURRENT-LIABILITIES> 828,600
<BONDS> 2,373,700
<COMMON> 149,700
0
0
<OTHER-SE> 1,982,500
<TOTAL-LIABILITY-AND-EQUITY> 7,447,300
<SALES> 1,730,000
<TOTAL-REVENUES> 2,515,400
<CGS> 1,610,900
<TOTAL-COSTS> 1,886,800
<OTHER-EXPENSES> 182,600
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