- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1997 Commission File Number 1-8157
PANENERGY CORP
(Exact name of Registrant as Specified in its Charter)
Delaware 74-2150460
(State or Other Jurisdiction (IRS Employer
of Incorporation) Identification No.)
5400 Westheimer Court
P.O. Box 1642
Houston, TX 77251-1642
(Address of Principal Executive Offices)
(Zip code)
Registrant's telephone number, including area code: 713-627-5400
No Change
(Former name, former address and former fiscal year,
if changed since last report)
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 12 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 ___
The Registrant meets the conditions set forth in General Instructions (H)(1)(a)
and (b) of Form 10Q and is therefore filing this Form 10Q with the reduced
disclosure format. Part I, Item 2 has been reduced and Part II, Item 4 has been
omitted in accordance with such Instruction H.
All of the Registrant's common shares are indirectly owned by Duke Energy
Corporation (File No. 1-4928), which files reports and proxy materials pursuant
to the Securities Exchange Act of 1934.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date:
Number of shares of Common Stock, no par value, outstanding at October 31,
1997: 1,000 shares
<PAGE>
PANENERGY CORP
INDEX
PART I. FINANCIAL INFORMATION
Page
----
Consolidated Statements of Income for the Three Months
Ended and Year To Date September 30, 1997 and 1996 2
Consolidated Statements of Cash Flows
for Year To Date September 30, 1997 and 1996 3
Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 4
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of
Results of Operations and Financial Condition 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
1
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
PANENERGY CORP
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Three Months Ended Year To Date
September 30 September 30
-------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating Revenues
Natural gas and petroleum products
Sales of natural gas and petroleum products $ 1,691.0 $ 1,424.4 $ 5,325.4 $ 3,742.2
Transportation and storage of natural gas 360.5 370.8 1,128.7 1,131.4
Trading and marketing of electricity 294.7 24.6 489.7 33.4
Other 35.4 21.4 108.3 70.7
---------- ---------- ---------- ----------
Total operating revenues 2,381.6 1,841.2 7,052.1 4,977.7
---------- ---------- ---------- ----------
Operating Expenses
Natural gas and petroleum products purchased 1,621.3 1,357.5 5,006.8 3,490.1
Net interchange and purchased power 292.6 25.2 487.7 34.1
Other operation and maintenance 205.3 183.4 658.5 596.0
Depreciation and amortization 78.9 73.1 235.3 217.3
Property and other taxes 19.3 19.4 73.1 61.5
---------- ---------- ---------- ----------
Total operating expenses 2,217.4 1,658.6 6,461.4 4,399.0
---------- ---------- ---------- ----------
Operating Income 164.2 182.6 590.7 578.7
---------- ---------- ---------- ----------
Other Income and Expenses
Deferred returns and allowance for funds used
during construction 0.9 0.6 1.9 1.7
Other, net 3.0 13.3 26.0 22.2
---------- ---------- ---------- ----------
Total other income and expense 3.9 13.9 27.9 23.9
---------- ---------- ---------- ----------
Earnings Before Interest and Taxes 168.1 196.5 618.6 602.6
Interest Expense 49.9 57.1 149.5 171.2
Minority Interest (1.6) 2.2 10.7 2.2
---------- ---------- ---------- ----------
Earnings Before Income Taxes 119.8 137.2 458.4 429.2
Income Taxes 47.2 51.1 185.9 161.5
---------- ---------- ---------- ----------
Net Income $ 72.6 $ 86.1 $ 272.5 $ 267.7
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
PANENERGY CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
Year To Date
September 30
-----------------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 272.5 $ 267.7
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 241.3 217.3
Deferred income taxes 53.4 49.1
(Increase) Decrease in
Receivables 148.5 (174.1)
Inventory (7.2) 8.0
Other current assets (Note 2) (872.9) (3.3)
Increase (Decrease) in
Accounts payable (197.0) 172.3
Taxes accrued 62.9 15.5
Interest accrued (16.4) (6.2)
Other current liabilities (Note 2) 750.5 (35.6)
Other, net (118.4) 85.1
-------- --------
Net cash provided by operating activities 317.2 595.8
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (267.3) (416.2)
Investment expenditures (67.0) (59.9)
Retirements and other investing 58.3 47.4
-------- --------
Net cash used in investing activities (276.0) (428.7)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
Long-term debt -- 100.0
Common stock -- 8.8
Payments for the redemption of long-term debt (128.2) (53.9)
Net change in notes payable and commercial paper 116.4 (128.0)
Dividends paid (72.7) (106.3)
Other 14.5 (1.3)
-------- --------
Net cash used in financing activities (70.0) (180.7)
-------- --------
Net decrease in cash and cash equivalents (28.8) (13.6)
Cash and cash equivalents at beginning of period 57.2 50.8
-------- --------
Cash and cash equivalents at end of period $ 28.4 $ 37.2
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PANENERGY CORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 28.4 $ 57.2
Receivables 1,029.5 1,178.0
Inventory 139.3 132.1
Current portion of natural gas transition costs 66.9 67.9
Other (Note 2) 1,006.1 133.2
---------- ----------
Total current assets 2,270.2 1,568.4
---------- ----------
Investments and Other Assets
Investments in affiliates 334.2 313.9
Pre-funded pension costs 298.4 280.6
Goodwill, net 187.6 191.4
Other 67.4 58.4
---------- ----------
Total investments and other assets 887.6 844.3
---------- ----------
Property, Plant and Equipment
Cost 9,040.3 8,822.5
Less accumulated depreciation and amortization 3,545.5 3,365.8
---------- ----------
Net property, plant and equipment 5,494.8 5,456.7
---------- ----------
Regulatory Assets and Deferred Debits
Debt expense 67.6 74.2
Regulatory asset related to income taxes 14.5 4.5
Natural gas transition costs 207.8 250.0
Environmental clean-up costs 107.7 153.2
Other 112.5 133.9
---------- ----------
Total regulatory assets 510.1 615.8
---------- ----------
Total Assets $ 9,162.7 $ 8,485.2
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PANENERGY CORP
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In millions)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------ -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Accounts payable $ 762.2 $ 959.2
Notes payable and commercial paper 470.5 354.1
Taxes accrued 136.7 73.8
Interest accrued 43.3 59.7
Current portion of natural gas transition liabilities 47.4 84.4
Current portion of environmental clean-up liabilities 26.9 32.4
Current maturities of long-term debt 13.8 138.3
Other (Note 2) 1,106.6 356.1
---------- ----------
Total current liabilities 2,607.4 2,058.0
---------- ----------
Long Term Debt 1,933.8 1,947.0
---------- ----------
Deferred Credits and Other Liabilities
Deferred income taxes 1,251.5 1,192.5
Natural gas transition liabilities 85.0 121.9
Environmental clean-up liabilities 170.6 188.9
Other 344.6 442.1
---------- ----------
Total deferred credits and other liabilities 1,851.7 1,945.4
---------- ----------
Minority Interest 119.9 82.3
---------- ----------
Common Stockholder's Equity
Common stock 151.5 151.1
Paid-in-capital 2,252.6 2,242.1
Retained earnings 245.8 59.3
---------- ----------
Total common stockholder's equity 2,649.9 2,452.5
---------- ----------
Total Liabilities and Stockholder's Equity $ 9,162.7 $ 8,485.2
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
PANENERGY CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Operations and Business Combinations
PanEnergy Corp (PanEnergy) and its subsidiaries (the Company) are involved in
the transportation, storage, gathering and processing of natural gas, and the
production of natural gas liquids (NGLs). Also, the Company is a marketer of
natural gas, electricity, liquefied petroleum gases and related energy services.
The Company is an indirect wholly owned subsidiary of Duke Energy Corporation
(Duke Energy). On June 18, 1997, PanEnergy was merged with a wholly owned
subsidiary of Duke Energy, with PanEnergy as the surviving corporation. Pursuant
to the merger, each share of the Company's outstanding common stock was
converted into the right to receive 1.0444 shares of Duke Energy common stock.
In addition, each option to purchase PanEnergy common stock became an option to
purchase common stock of Duke Energy. The merger was accounted for as a pooling
of interests.
The Company's natural gas transmission operations include interstate
transportation and storage of natural gas to customers in the Mid-Atlantic, New
England, Midwest and Gulf Coast states. The interstate natural gas transmission
and storage operations of the Company's wholly owned subsidiaries Texas Eastern
Transmission Corporation (TETCO), Algonquin Gas Transmission Company
(Algonquin), Panhandle Eastern Pipe Line Company (PEPL), and Trunkline Gas
Company (Trunkline), are subject to the rules and regulations of the Federal
Energy Regulatory Commission (FERC).
2. Accounting Policies
General - The consolidated financial statements include the accounts of the
Company and all majority-owned subsidiaries. These quarterly financial
statements reflect all normal recurring adjustments that are, in the opinion of
management, necessary to present fairly the financial position and results of
operations for the respective periods. Amounts reported in the Consolidated
Statements of Income are not necessarily indicative of amounts expected for the
respective years due to the effects of seasonal temperature variations on energy
consumption.
Derivative Instruments - The Company holds and issues instruments that reduce
the Company's exposure to market fluctuations in the price and transportation
costs of natural gas, petroleum products and electric power marketed. The
Company uses futures, swaps and options to manage and hedge price and location
risk related to market exposures. In order to qualify as a hedge, the price
movements in the commodity derivatives must be highly correlated with the
underlying hedged commodity. Gains and losses related to commodity derivatives
which qualify as hedges of commodity commitments are recognized in income when
the underlying hedged physical transaction closes (the deferral method) and are
included in natural gas and petroleum products purchased or net interchange and
purchased power in the Consolidated Statements of Income. Gains and losses
related to such instruments, to the extent settled in cash, are reported as
other
6
<PAGE>
current assets or liabilities, as appropriate, in the Consolidated Balance
Sheets until recognized in income. If the derivative instrument is no longer
sufficiently correlated to the underlying commodity, or if the underlying
commodity transaction closes earlier than anticipated, the deferred gains or
losses are recognized in income.
In addition to hedging activities, the Company also engages in the trading of
such instruments, and therefore experiences net open positions in terms of
price, volume and specified delivery point. Gains and losses on derivatives
utilized for trading are recognized in income on a current basis (the mark to
market method) and are also included in natural gas and petroleum products
purchased or net interchange and purchased power.
At September 30, 1997, the Company had unrealized gains of $892.9 million and
unrealized losses of $876.2 million recorded as other current assets and other
current liabilities, respectively, related to derivatives utilized for hedging
and trading purposes.
Supplemental Cash Flow Information - Total income taxes paid for the year to
date September 30, 1997 and 1996 were $64.9 million and $43.6 million,
respectively. Interest paid, net of amounts capitalized, for the nine months
ended September 30, 1997 and 1996 was $168.3 million and $168.1 million,
respectively.
Reclassification - Certain amounts for the prior periods have been reclassified
in the consolidated financial statements to conform to the current presentation.
3. Rate Matters
On April 1, 1992 and November 1, 1992, PEPL placed into effect, subject to
refund, general rate increases. On February 26, 1997, FERC approved PEPL's
settlement agreement which provides final resolution of refund matters and
establishes prospective rates. The agreement terminates other actions relating
to these proceedings as well as PEPL's restructuring of rates and transition
cost recoveries related to Order 636. As a result of the resolution of this and
other matters, PEPL recorded pre-tax earnings of $32.7 million year to date
September 30, 1997 and refunded $37.8 million to customers. The settlement will
not have a material impact on future operating revenues.
4. Related Party Transaction and Credit Facilities
During August 1997, the Company's $400 million 364-day credit facility and the
$400 million five-year credit facility were dissolved. As a result, Duke Capital
Corporation, the Company's parent and a wholly owned subsidiary of Duke Energy,
began providing credit support in August 1997. As of September 30, 1997, notes
payable and commercial paper included $470.4 due to Duke Capital Corporation.
7
<PAGE>
5. Commitments and Contingencies
Litigation
A lawsuit filed in the United States District Court for the District of Columbia
by a natural gas producer was served in July 1996 naming TETCO, PEPL, Trunkline
and PanEnergy Services, Inc. (a subsidiary of PanEnergy) as defendants, among
others. The action was brought under the federal False Claims Act against 70
defendants, including every major natural gas pipeline, asserting that the
defendants intentionally underreported volumes and heating content of gas
purchased from producers on federal and Indian lands, with the result that the
United States was underpaid royalties. The plaintiff sought recovery of the
royalty amounts due the United States, treble damages and civil penalties. The
Company's named affiliates and many of the other defendants were dismissed from
the lawsuit on March 27, 1997. The plaintiff retains the right to refile the
claims against the various defendants under certain conditions. The Company
believes the resolution of this matter will not have a material adverse effect
on the Company's results of operations or financial position.
On August 31, 1995, Midwest Gas Storage, Inc. (Midwest) filed suit against PEPL
and PanEnergy in the 58th Judicial District Court, Jefferson County, Texas,
alleging that PEPL breached an interconnection agreement with Midwest and used
its superior bargaining position to force Midwest to accept terms and conditions
which were not in the original agreement. Amended petitions filed in 1996 and
1997 further alleged that PEPL and PanEnergy, through economic coercion,
attempted to drive Midwest out of business. This matter was disposed of by the
parties in July 1997 and did not have a material adverse effect on the financial
position of the Company.
On December 16, 1996, TETCO received notification that Marathon Oil Company
(Marathon) intended to commence substitution of other gas reserves,
deliverability and leases for those dedicated to a certain natural gas purchase
contract (the Marathon Contract) with TETCO. In TETCO's view, the tendered
substitute gas reserves, deliverability and leases are not subject to the
Marathon Contract and TETCO filed a declaratory judgment action on December 17,
1996 in the U.S. District Court for the Eastern District of Louisiana seeking a
ruling that Marathon's interpretation of the Marathon Contract is incorrect. On
January 7, 1997, Marathon filed an answer and a counterclaim to TETCO's
complaint seeking a declaratory judgment enforcing its interpretation of the
Marathon Contract.
On February 18, 1997, Amerada Hess Corporation (Amerada Hess) notified TETCO
that it intended to commence substitution of other gas reserves, deliverability
and leases for those dedicated to its natural gas purchase contract (the Amerada
Hess Contract) with TETCO. On the same date, Amerada Hess also filed a petition
in the District Court of Harris County, Texas, 157th Judicial District, seeking
a declaratory judgment that its interpretation of the Amerada Hess Contract,
which covers the same leases and reserves as the Marathon Contract, is correct.
TETCO filed a declaratory judgment action with respect to Amerada Hess
contentions in the U.S. District Court for the Eastern District of Louisiana on
February 21, 1997. The two actions have been transferred to the judge presiding
over the Marathon Contract matter.
On September 26, 1997 the judge presiding over the Marathon and Amerada Hess
contract matters issued summary judgments in both actions in favor of TETCO.
Marathon and Amerada Hess subsequently filed notices of appeal of the summary
judgments. The potential liability of
8
<PAGE>
the Company associated with both the Marathon Contract and the Amerada Hess
Contract should TETCO be contractually obligated to purchase natural gas based
upon the substitute gas reserves, deliverability and leases, and the effect of
transition cost recoveries pursuant to TETCO's Order 636 settlement involve
numerous complex legal and factual matters which will take a substantial period
of time to resolve. As a result, the Company cannot estimate the effects on
results of operations or financial position.
On April 25, 1997, a group of affiliated plaintiffs that own and/or operate
various pipeline and marketing partnerships in Kansas and Missouri filed suit
against PEPL in the United States District Court for the Western District of
Missouri. The plaintiffs allege that PEPL has engaged in unlawful and
anti-competitive conduct with regard to requests for interconnects with the PEPL
system for service to the Kansas City area. Asserting that PEPL has violated the
antitrust laws and tortiously interfered with plaintiffs' contracts with third
parties, plaintiffs seek compensatory and punitive damages in unspecified
amounts. Because this matter is in the early stages of litigation, the Company
cannot estimate the effects of this matter on the results of operations or
financial position.
On May 1, 1997, Citrus Trading Corporation (Citrus) and Enron Capital and Trade
Resources Corporation, as successor to Enron Gas Marketing Corporation, filed
suit in the District Court of Harris County, Texas, against PanEnergy LNG Sales,
Inc. (formerly Pan National Gas Sales, Inc.), a subsidiary of the Company,
alleging breach of a gas purchase contract (the Contract) for regasified LNG
entered into between Citrus and Pan National Gas Sales, Inc. Plaintiffs allege
that PanEnergy LNG Sales, Inc. failed to deliver LNG pursuant to the terms of
the Contract. The plaintiffs seek compensatory damages in unspecified amounts
for losses allegedly incurred as a result of the contract breach as well as a
declaratory judgment that PanEnergy LNG Sales Inc.'s assertions of force majeure
due to the interruption in the supply of LNG to PanEnergy LNG Sales, Inc. do not
constitute force majeure under the Contract. Because this matter is in the early
stages of litigation, the Company cannot estimate the effects of this matter on
the results of operations or financial position of the Company.
On May 13, 1997, Anadarko Petroleum Corporation (Anadarko) filed suits against
PEPL and other affiliates, as defendants, both in the United States District
Court for the Southern District of Texas and State District Court of Harris
County, Texas. Anadarko claims that it was effectively indemnified by the
defendants against any responsibility for refunds of Kansas ad valorem taxes
which are due purchasers of gas from Anadarko, retroactive to 1983. Because this
matter is in the early stages of litigation, the Company cannot estimate the
effects of this matter on the results of operations or financial position.
The Company is also involved in various other legal, tax and regulatory
proceedings before various courts, regulatory commissions and government
agencies arising in the ordinary course of business, some of which involve
substantial amounts. Where appropriate, the Company has made accruals in
accordance with Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies," in order to provide for such matters. Management is of the
opinion that the final disposition of these proceedings will not have a material
adverse effect on the results of operations or financial position of the
Company.
9
<PAGE>
Other Commitments and Contingencies
In 1993, the US 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. 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 substantial time to resolve. If
required to reimburse or indemnify the producers, the Company's pipelines will
file with FERC to recover a portion of these costs from pipeline customers.
Management is of the opinion that this matter will not have a material adverse
effect on the financial position of the Company.
The Company has a 10% ownership interest in TEPPCO Partners, L.P., a master
limited partnership (MLP) that owns and operates a petroleum products pipeline.
A subsidiary partnership of the MLP has $309.5 million in First Mortgage Notes
outstanding at September 30, 1997 with recourse to the general partner, a
subsidiary of PanEnergy. In the opinion of management, the probability that the
Company will be required to perform under this recourse provision is remote.
PEPL owns an effective 6% ownership interest in Northern Border Pipeline Company
(Northern Border) through a master limited partnership. 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 held by an affiliate of Pan-Alberta Gas Limited. The transportation
agreement requires estimated total payments of $94.4 million for 1997 through
2001. In the opinion of management, the probability that PEPL will be required
to perform under this guarantee is remote.
In connection with the sale of Petrolane Incorporated (Petrolane) in 1989, a
subsidiary of the Company agreed to indemnify Petrolane against certain
obligations for guaranteed leases and environmental matters. The lease
obligations as of September 30, 1997 totaled approximately $53.7 million over
the remaining terms of the leases, which expire in 2006. Management is of the
opinion that any performance required under this indemnity provision would not
have a material effect on results of operations or financial position of the
Company.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial Condition
On June 18, 1997, PanEnergy and Duke Energy consummated a stock-for-stock
merger. This business combination was accounted for as a pooling of interests.
See Note 1 to the consolidated Financial Statements for further information.
OPERATIONS AND BUSINESS UNITS
The Company provides services primarily through four business segments: Natural
Gas Transmission, Field Services, Trading and Marketing, and Parent and Other
Operations. The Natural Gas Transmission segment is involved in interstate
transportation and storage of natural gas to customers in the Mid-Atlantic, New
England, Midwest and Gulf Coast states. Field Services gathers and processes
natural gas and produces natural gas liquids. The Trading and Marketing
operations focus on marketing natural gas, electricity and liquefied petroleum
gases. Parent and Other Operations include corporate costs, intersegment
eliminations and other operations.
RESULTS OF OPERATIONS
Overview:
Net income was $72.6 million for the three months ended September 30, 1997
compared with $86.1 million for the same period in 1996. The decrease was
primarily due to lower natural gas trading and marketing margins in 1997 caused
by unusual market conditions with respect to gas prices and the favorable
resolution of certain regulatory matters in 1996, partially offset by lower
interest expense in 1997.
Net income was $272.5 million for the year to date September 30, 1997 compared
with $267.7 million for the same period in 1996. The increase was primarily due
to the resolution of certain regulatory matters in 1997 in excess of those in
1996, increased gathering and processing volumes related to acquisitions and
expansion projects and lower interest expense in 1997.
Operating income for the three months ended September 30, 1997 decreased to
$164.2 million compared to $182.6 million for the same period in 1996. The
decrease for the quarter was primarily due to lower natural gas trading and
marketing margins in 1997 caused by unusual market conditions with respect to
gas prices.
Year to date September 30, 1997 operating income was $590.7 million compared
with $578.7 million for the same period in 1996. The $12 million increase was
primarily due to the resolution of certain regulatory matters in 1997 and
increased gathering and processing volumes related to acquisitions and expansion
projects. Operating income and earnings before interest and taxes are not
materially different, and are affected by the same fluctuations for the Company
and each of its business segments. Earnings before interest and taxes by
business segment are summarized below, and the explanation of these results by
business segment are discussed thereafter.
11
<PAGE>
<TABLE>
<CAPTION>
Earnings Before Interest and Taxes (EBIT) by Business Segment:
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Year To Date
September September September September
In Millions 30, 1997 30, 1996 30, 1997 30, 1996
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Natural Gas Transmission $ 134.6 $ 148.8 $ 485.3 $ 449.3
Field Services 36.1 32.7 118.9 95.5
Trading and Marketing (4.4) 10.0 29.9 46.0
Parent and Other Operations 1.8 5.0 (15.5) 11.8
-------- -------- -------- --------
Consolidated EBIT $ 168.1 $ 196.5 $ 618.6 $ 602.6
======== ======== ======== ========
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Natural Gas Transmission
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Year To Date
September September September September
In Millions 30, 1997 30, 1996 30, 1997 30, 1996
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
Operating Revenues $ 365.5 $ 368.4 $1,174.7 $ 1,154.1
Operating Expenses 233.5 233.6 709.0 723.8
-------- -------- -------- ---------
Operating Income 132.0 134.8 465.7 430.3
Other Income, Net 2.6 14.0 19.6 19.0
-------- -------- -------- ----------
EBIT $ 134.6 $ 148.8 $ 485.3 $ 449.3
======== ======== ======== ==========
Volumes, TBtu Throughput 593 599 2,079 2,155
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings before interest and taxes for Natural Gas Transmission decreased for
the three months ended September 30, 1997 compared to the same period in 1996
due primarily to favorable resolution of certain regulatory matters in 1996,
which were included in revenues and other income.
Earnings before interest and taxes for Natural Gas Transmission increased $36
million for the year to date September 30, 1997 compared to the same period in
1996 primarily due to favorable resolution of certain regulatory matters in 1997
in excess of those in 1996. The increase was also due to market expansion
projects. The resolution of regulatory matters was reflected as additional
revenue and other income.
12
<PAGE>
<TABLE>
<CAPTION>
Field Services
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Year To Date
September September September September
In Millions 30, 1997 30, 1996 30, 1997 30, 1996
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
Operating Revenues $ 738.7 $ 639.8 $ 2,208.8 $ 1,735.7
Operating Expenses 702.6 607.1 2,090.1 1,642.3
-------- -------- ---------- ----------
Operating Income 36.1 32.7 118.7 93.4
Other Income, Net -- -- .2 2.1
-------- -------- ---------- ----------
EBIT $ 36.1 $ 32.7 $ 118.9 $ 95.5
======== ======== ========== ==========
Volumes TBtu/day Natural Gas
Gathered/Processed 3.4 3.0 3.4 2.7
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings before interest and taxes for Field Services increased $3.4 million for
the three months ended September 30, 1997 compared to the same period in 1996.
Year to date earnings before interest and taxes increased $23.4 million compared
to the same period in 1996. For both periods, operating revenues and operating
expenses increased as a result of increased gathering and processing volumes
related to acquisitions and expansion projects.
<TABLE>
<CAPTION>
Trading and Marketing
- -------------------------------------------------------------------------------------------------------------
Three Months Ended Year To Date
September September September September
In Millions 30, 1997 30, 1996 30, 1997 30, 1996
-------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Operating Revenues $ 1,406.2 $ 913.6 $ 4,108.2 $ 2,362.6
Operating Expenses 1,411.4 904.2 4,079.7 2,317.7
--------- --------- --------- ---------
Operating Income (5.2) 9.4 28.5 44.9
Other Income, Net .8 .6 1.4 1.1
--------- --------- --------- ---------
EBIT $ (4.4) $ 10.0 $ 29.9 $ 46.0
========= ========= ========= =========
Volumes:
Natural Gas Marketed, TBtu/day 6.1 5.6 6.1 4.7
Electricity Marketed, GWh 10,913 1,361 20,266 2,058
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Earnings before interest and taxes for Trading and Marketing decreased $14.4
million for the three months ended September 30, 1997 compared with the same
period in 1996. The decline resulted primarily from lower natural gas trading
and marketing margins caused by unusual market conditions with respect to
natural gas prices. The margin decline was partially offset by increased
volumes. Natural gas and electricity volumes marketed increased primarily as a
result of the formation of the joint venture with Mobil Corporation in August
1996.
13
<PAGE>
Earnings before interest and taxes for Trading and Marketing decreased $16.1
million for the year to date ended September 30, 1997 compared with the same
period in 1996. The decline resulted primarily from lower natural gas trading
and marketing margins offset by an increase in volumes. Natural gas and
electricity volumes marketed increased primarily as a result of the formation of
the joint venture with Mobil Corporation in the third quarter of 1996.
Parent and Other Operations
Parent and Other results for the year to date September 30, 1997 reflect
merger-related costs of $33.2 million. Merger-related costs consist primarily of
advisory fees and workforce reduction costs.
LIQUIDITY AND CAPITAL RESOURCES
Operating Cash Flow
Operating cash flows decreased $278.6 million comparing the year to date
September 30, 1997 with the same period in 1996. This decrease reflects payments
associated with the rate case settlements during 1997 and cash impact of
receivables sold in 1996 and repaid in 1997, which were classified as current
liabilities.
The Trading and Marketing operations of the Company were combined with those of
Duke/Louis Dreyfus LLC, a wholly owned subsidiary of Duke Energy, in June 1997.
This combination is expected to increase the Company's trading and marketing
activity.
Investing Cash Flow
Capital and investment expenditures totaled $334.3 million for year to date
September 30, 1997, compared with $476.1 million for the same period in 1996.
The decrease in capital and investment expenditures was primarily due to a 1996
acquisition of certain assets of Mobil Corporation for approximately $200
million by the Company's Field Services business unit. Capital and investment
expenditures during 1997 consisted primarily of business expansion efforts of
the Natural Gas Transmission and Field Services segments. The Company continues
its growth strategy of expanding non-jurisdictional businesses, while also
continuing to develop interstate gas pipeline market-expansion projects and new
services for customers.
During 1997, the Company sold its ownership in operations in the United Kingdom
and an equity ownership interest in an affiliate. Proceeds from these sales were
$57 million.
Financing Cash Flow
During August 1997, the Company dissolved its $800 million commercial paper
facilities and related variable-rate bank credit agreements that permitted the
Company to borrow up to $400 million under a five-year facility and $400 million
under a 364-day facility. The Company's financing needs are now supported by
commercial paper and credit facilities maintained by the Company's parent, Duke
Capital Corporation.
14
<PAGE>
Dividends and debt repayments for the next year, along with operating and
investing requirements, are expected to be funded by cash from operations and
borrowings from Duke Capital Corporation. The Company is seeking to
significantly grow its Field Services and Trading and Marketing businesses,
which will likely require additional financing.
OTHER
Litigation and Contingencies
For information concerning litigation and other contingencies, see Note 5 to the
Consolidated Financial Statements.
15
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule (included in electronic filing only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on July 7, 1997 under Item 4,
Changes in Registrant's Certifying Accountant.
16
<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.
PANENERGY CORP
___________________________________
Paul F. Ferguson, Jr.
Senior Vice President and
Chief Financial Officer
November 14, 1997
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
PanEnergy Corp Quarterly Report on Form 10-Q for quarter ended
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000351696
<NAME> PANENERGY CORP
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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<PP&E> 9040300
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0
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<F1>Not meaningful since PanEnergy Corp is a wholly-owned subsidiary.
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</TABLE>
