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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 MARCH 31, 1998 COMMISSION FILE NUMBER 1-8157
PANENERGY CORP
(Exact name of Registrant as Specified in its Charter)
DELAWARE 74-2150460
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation)
5400 WESTHEIMER COURT
P.O. BOX 1642
HOUSTON, TX 77251-1642
(Address of Principal Executive Offices)
(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 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 10-Q and is therefore filing this Form 10-Q 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 April 30,
1998.................................1,000
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<PAGE>
PANENERGY CORP
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
<S> <C>
ITEM PAGE
PART I. FINANCIAL INFORMATION
1. Financial Statements....................................................................................1
Consolidated Statements of Income for the Three Months Ended March 31, 1998 and 1997................1
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1998 and 1997............2
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997..............................3
Notes to Consolidated Financial Statements..........................................................5
2. Management's Discussion and Analysis of Results of Operations and Financial Condition...................8
PART II. OTHER INFORMATION
1. Legal Proceedings......................................................................................10
5. Other Information......................................................................................10
6. Exhibits and Reports on Form 8-K.......................................................................10
Signatures.............................................................................................11
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
PANENERGY CORP
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
March 31
----------------------------------
1998 1997
-------------- ----------------
<S> <C> <C>
OPERATING REVENUES
Sales, trading and marketing of natural gas
and petroleum products $ 1,976.0 $ 2,127.3
Transportation and storage of natural gas 387.2 410.0
Trading and marketing of electricity 537.4 82.5
Other 165.5 105.4
--------- ----------
Total operating revenues 3,066.1 2,725.2
--------- ----------
OPERATING EXPENSES
Natural gas and petroleum products purchased 1,868.7 1,968.9
Purchased power 537.7 82.4
Other operation and maintenance 317.3 282.3
Depreciation and amortization 90.1 79.5
Property and other taxes 13.5 29.7
--------- ----------
Total operating expenses 2,827.3 2,442.8
--------- ----------
OPERATING INCOME 238.8 282.4
--------- ----------
OTHER INCOME AND EXPENSES
Allowance for funds used during construction 0.2 0.3
Other, net 45.7 4.8
--------- ----------
Total other income and expenses 45.9 5.1
--------- ----------
EARNINGS BEFORE INTEREST AND TAXES 284.7 287.5
INTEREST EXPENSE 43.4 50.6
MINORITY INTERESTS 9.1 10.5
--------- ----------
EARNINGS BEFORE INCOME TAXES 232.2 226.4
INCOME TAXES 86.7 88.1
--------- ----------
INCOME BEFORE EXTRAORDINARY ITEM 145.5 138.3
EXTRAORDINARY ITEM (NET OF TAX) (8.0) -
--------- ----------
NET INCOME $ 137.5 $ 138.3
========= ==========
</TABLE>
See Notes to Consolidated Financial Statements.
1
<PAGE>
PANENERGY CORP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 137.5 $ 138.3
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 91.5 79.5
Deferred income taxes (8.1) 39.3
Decrease in
Receivables 267.2 236.4
Inventory 35.4 28.8
Other current assets 24.0 34.9
Increase (Decrease) in
Accounts payable (341.0) (254.7)
Taxes accrued 52.7 37.2
Interest accrued (4.9) (7.3)
Other current liabilities (18.5) (2.7)
Other, net (0.1) (30.4)
---------------- ----------------
Net cash provided by operating activities 235.7 299.3
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (133.7) (51.1)
Investment expenditures (96.6) (27.3)
Proceeds from sales and other 9.4 1.2
---------------- ----------------
Net cash used in investing activities (220.9) (77.2)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments for the redemption of long-term debt (33.7) (114.5)
Net change in notes payable and commercial paper - (78.8)
Net change in advances - parent (49.5) -
Capital infusions from parent 58.0 -
Dividends paid - (36.3)
Other, net (35.0) (34.1)
---------------- ----------------
Net cash used in financing activities (60.2) (263.7)
---------------- ----------------
Net decrease in cash and cash equivalents (45.4) (41.6)
Cash received from business acquisitions 34.5 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 47.1 118.1
================ ================
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36.2 $ 76.5
================ ================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest (net of amount capitalized) $ 44.6 $ 39.0
Cash paid for income taxes $ 34.3 $ 4.4
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
PANENERGY CORP
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
March 31, December 31,
1998 1997
(Unaudited)
---------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 36.2 $ 47.1
Receivables 1,344.3 1,598.7
Inventory 118.8 145.6
Current portion of natural gas transition costs 66.2 66.9
Unrealized gains on mark to market transactions 696.0 551.3
Other 117.0 140.0
---------------- ----------------
Total current assets 2,378.5 2,549.6
---------------- ----------------
INVESTMENTS AND OTHER ASSETS
Investments in affiliates 688.3 636.8
Pre-funded pension costs 307.7 302.6
Goodwill, net 516.5 503.6
Notes receivable 175.3 173.4
Other 194.1 145.5
---------------- ----------------
Total investments and other assets 1,881.9 1,761.9
---------------- ----------------
PROPERTY, PLANT AND EQUIPMENT
Cost 9,389.2 9,194.4
Less accumulated depreciation and amortization 3,691.6 3,609.2
---------------- ----------------
Net property, plant and equipment 5,697.6 5,585.2
---------------- ----------------
REGULATORY ASSETS AND DEFERRED DEBITS
Debt expense 63.6 65.6
Regulatory asset related to income taxes 18.6 16.9
Natural gas transition costs 180.9 193.7
Environmental clean-up costs 99.3 103.6
Other 103.1 108.8
---------------- ----------------
Total regulatory assets and deferred debits 465.5 488.6
---------------- ----------------
TOTAL ASSETS $ 10,423.5 $ 10,385.3
================ ================
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
PANENERGY CORP
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(Unaudited)
------------ ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,092.2 $ 1,428.0
Advances - Parent 538.5 450.5
Taxes accrued 160.0 107.2
Interest accrued 45.4 50.3
Current portion of natural gas transition liabilities 35.0 35.0
Current portion of environmental clean-up liabilities 27.3 26.4
Current maturities of long-term debt 13.8 13.8
Unrealized losses on mark to market transactions 690.7 537.8
Other 310.8 324.3
--------- ---------
Total current liabilities 2,913.7 2,973.3
--------- ---------
LONG-TERM DEBT 1,969.6 1,936.5
--------- ---------
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 1,304.0 1,312.9
Natural gas transition liabilities 63.6 78.4
Environmental clean-up liabilities 153.6 157.6
Other 465.5 428.4
--------- ---------
Total deferred credits and other liabilities 1,986.7 1,977.3
--------- ---------
MINORITY INTERESTS 162.2 167.2
--------- ---------
COMMON STOCKHOLDER'S EQUITY
Common stock, 1,000 shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively, $1 par value per share 151.8 151.8
Paid-in capital 3,066.7 3,006.2
Retained earnings 172.8 173.0
--------- ---------
Total common stockholder's equity 3,391.3 3,331.0
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 10,423.5 $ 10,385.3
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
PANENERGY CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
PanEnergy Corp (the Company) is an indirect wholly owned subsidiary of Duke
Energy Corporation (Duke Energy). In October 1997, Duke Capital Corporation
(Duke Capital), a wholly owned subsidiary of Duke Energy and parent company of
PanEnergy Corp, contributed the common stock of several wholly owned
subsidiaries to the Company. These subsidiaries included Duke Engineering &
Services, Inc., DukeSolutions, Inc., and Duke Energy Global Asset Development,
Inc. The consolidated financial statements for periods prior to the combination
of the Company and these entities were restated to include the operations of
these subsidiaries.
The Company conducts its operating activities primarily through two business
segments: Natural Gas Transmission and Energy Services.
The Natural Gas Transmission segment is engaged in interstate transportation and
storage of natural gas for customers primarily in the Mid-Atlantic, New England
and Midwest states. The interstate natural gas transmission and storage
operations are also subject to the rules and regulations of the Federal Energy
Regulatory Commission (FERC).
The Energy Services segment is comprised of several separate business units:
Field Services gathers and processes natural gas, produces and markets natural
gas liquids and transports and trades crude oil; Trading and Marketing markets
natural gas, electricity and other energy-related products; Global Asset
Development develops, owns and operates energy-related facilities worldwide; and
Other Energy Services provides engineering consulting, construction and
integrated energy solutions.
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. These consolidated 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.
2. RELATED PARTY TRANSACTIONS
A summary of certain balances due to or due from related parties included in the
Consolidated Balance Sheets is as follows :
------------------------- ---------------------- -----------------------
IN MILLIONS March 31, 1998 December 31, 1997
------------------------- ---------------------- -----------------------
Receivables $ 7.0 $ 14.9
Accounts payable 106.0 132.6
Taxes accrued 84.2 27.9
------------------------- ---------------------- -----------------------
Advances-Parent are carried as open accounts and are not segregated between
current and non-current amounts. Increases and decreases in advances result from
the movement of funds to provide for operations, capital expenditures and debt
payments of the Company.
3. COMMITMENTS AND CONTINGENCIES
LITIGATION. On February 18, 1997, Amerada Hess Corporation (Amerada Hess)
notified Texas Eastern Transmission Corporation (TETCO), a subsidiary of the
Company, 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
5
<PAGE>
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.
On September 26, 1997, the judge presiding over the Amerada Hess contract matter
issued a summary judgment in favor of TETCO. Amerada Hess subsequently filed a
notice of appeal of the summary judgment. The potential liability of the Company
associated with 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 involves numerous complex legal and factual
matters which will take a substantial period of time to resolve. However, the
Company does not believe that Amerada Hess will prevail on its appeal of the
lower court's summary judgment. Management is of the opinion that the final
disposition of this matter will not have a material adverse effect on the
consolidated results of operations or financial position of the Company.
On April 25, 1997, a group of affiliated plaintiffs that own and/or operate
various pipeline and marketing companies and partnerships primarily in Kansas
filed suit against Panhandle Eastern Pipe Line Company (PEPL), a subsidiary of
the Company, in the U.S. 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 the plaintiffs' contracts with third
parties, the plaintiffs seek compensatory and punitive damages in unspecified
amounts. Based on information currently available to the Company, the Company
believes the resolution of this matter will not have a material adverse effect
on the consolidated results of operations or financial position of the Company.
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. Based on information currently
available to the Company, the Company believes the resolution of this matter
will not have a material adverse effect on the consolidated 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. The suit has
been stayed pending resolution by the FERC of ad-valorem tax issues. Based on
information currently available to the Company, the Company believes the
resolution of this matter will not have a material adverse effect on the
consolidated results of operations or financial position of the Company.
The Company and its subsidiaries are also involved in other legal, tax and
regulatory proceedings before various courts, regulatory commissions and
governmental agencies regarding matters arising in the ordinary course of
business, some of which involve substantial amounts. Where appropriate for all
of these matters, 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 matters will not have a material adverse effect on the
consolidated results of operations or financial position of the Company.
6
<PAGE>
OTHER COMMITMENTS AND CONTINGENCIES. In 1993, 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. 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 the FERC to recover a portion
of these costs from pipeline customers.
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.
At March 31, 1998, a subsidiary partnership of the MLP had $389.7 million in
First Mortgage Notes outstanding with recourse to the general partner, a
subsidiary of the Company, up to $40 million.
PEPL owns an effective 5.3% ownership interest in 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 held by an affiliate
of Pan-Alberta Gas Limited. The transportation agreement requires estimated
total payments of $73.2 million for 1998 through 2001.
In connection with the sale of Petrolane Incorporated (Petrolane) in 1989, Texas
Eastern Corporation (TEC), a subsidiary of the Company, agreed to indemnify
Petrolane against certain obligations for guaranteed leases and environmental
matters. Certain of these lease obligations relate to Petrolane's divestiture of
supermarket operations prior to its acquisition by TEC and as of March 31, 1998
totaled approximately $48 million over the remaining terms of the leases, which
expire in 2006.
In January 1998, the Company acquired a 9.8% ownership in Alliance Pipeline.
This pipeline is designed to transport natural gas from western Canada to the
Chicago-area market center for distribution throughout North America. The
pipeline is scheduled to begin commercial operation in the second half of 2000,
provided the necessary U.S. and Canadian regulatory approvals are secured. In
addition to buying an ownership interest in the pipeline project, the Company
has a contractual commitment for 67.25 million cubic feet per day of capacity on
the line over 15 years for an estimated total of $315 million.
As of March 31, 1998, the Company had letters of credit and surety bonds of
$42.7 million issued on its behalf related to natural gas transmission
operations, engineering services contracts, insurance contracts and various
other items.
Periodically, the Company may become involved in contractual disputes with
natural gas transmission customers involving potential or threatened abrogation
of contracts by the customers. If the customers are successful, the Company may
not receive the full value of anticipated benefits under the contracts.
In the normal course of business, certain of the Company's affiliates enter into
various contracts, including agreements for debt, natural gas transmission
service and construction contracts, which contain certain schedule and
performance requirements. Such affiliates use risk management techniques to
mitigate their exposure associated with such contracts. Duke Capital or the
Company has guaranteed performance by such affiliates under some of these
contracts.
Management is of the opinion that these commitments and contingencies will not
have a material adverse effect on the consolidated results of operations or the
financial position of the Company.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
INTRODUCTION
PanEnergy Corp (PanEnergy) is an indirect wholly owned subsidiary of Duke Energy
Corporation. PanEnergy and its subsidiaries (the Company) conducts its operating
activities primarily through two business segments: Natural Gas Transmission and
Energy Services.
The Natural Gas Transmission segment is involved in interstate transportation
and storage of natural gas for customers in the Mid-Atlantic, New England and
Midwest states. The interstate natural gas transmission and storage operations
of the Company's wholly owned subsidiaries are subject to the rules and
regulations of the Federal Energy Regulatory Commission (FERC).
The Energy Services segment is comprised of several separate business units:
Field Services gathers and processes natural gas, produces and markets natural
gas liquids (NGL) and transports and trades crude oil; Trading and Marketing
markets natural gas, electricity and other energy-related products; Global Asset
Development develops, owns and operates energy-related facilities worldwide; and
Other Energy Services provides engineering consulting, construction and
integrated energy solutions.
Management's Discussion and Analysis should be read in conjunction with the
Consolidated Financial Statements of the Company.
RESULTS OF OPERATIONS
For the three months ended March 31, 1998, revenues were $3,066.1 million, an
increase of 12% over the comparable period in 1997. This increase is primarily
due to Trading and Marketing's 23% increase in revenues due to increased volumes
of both electricity and natural gas marketed, primarily as a result of the June
1997 purchase of the remaining 50% ownership interest in the Duke/Louis Dreyfus,
L.L.C. joint venture. Partially offsetting the increase in revenues were
decreased revenues of the Natural Gas Transmission segment, primarily as a
result of a decline in throughput volumes in 1998 and a provision reversal in
1997 related to a favorable resolution of certain regulatory matters, and
decreased Field Services revenues, primarily as a result of lower NGL prices.
Operating expenses increased 16% to $2,827.3 million in the three months ended
March 31, 1998 as compared to the same period in 1997. This increase is
primarily due to increased expenses of Trading and Marketing resulting from
increased volumes of electricity and natural gas marketed partially offset by
decreased expenses of Field Services as a result of decreased natural gas
prices.
For the three months ended March 31, 1998, other income and expense increased
$40.8 million over the prior year period primarily as a result of a gain on an
asset sale by Field Services.
Interest expense decreased 14% for the three months ended March 31, 1998 over
the comparable period in 1997 as a result of the termination of the Company's
commercial paper program in August 1997.
In January 1998, TEPPCO Partners, L.P., in which the Company has a 10% ownership
interest, redeemed certain First Mortgage Notes. The Company recorded a non-cash
extraordinary item of $8 million, net of income tax of $5.1 million, related to
its share of costs of the early retirement of debt.
The combined effect of the foregoing resulted in net income of $137.5 million
for the three months ended March 31, 1998 compared to $138.3 million for the
same period of 1997.
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
OPERATING CASH FLOW
Operating cash flows decreased $63.6 million comparing the three months ended
March 31, 1998 with the same period in 1997 primarily due to changes in working
capital.
On April 28, 1998, Texas Eastern Transmission Corporation (TETCO), a subsidiary
of the Company, filed with the FERC a proposed settlement to accelerate recovery
of natural gas transition costs and to reduce depreciation expense to more
appropriately reflect the estimated useful lives of its facilities, principally
interstate natural gas pipelines. The Company reviewed the condition of its
natural gas pipeline facilities and current maintenance practices, and concluded
that extension of the useful lives was appropriate. The proposed settlement
reduces customer rates as a result of the reduced depreciation expense offset by
the accelerated recovery of natural gas transition costs. TETCO anticipates
implementation of the proposed settlement as early as August 1998. The proposed
settlement is not expected to have a material effect on the net results of
operations or financial position of the Company. As a result of the proposed
settlement, cash flows from operations are not expected to change for the first
two years after implementation due to the offsetting effect on customer rates of
the reduced depreciation expense and increased recovery of natural gas
transition costs. Once the natural gas transition costs are fully recovered,
cash flows from operations are expected to decrease during 2001 through 2003 by
an estimated total of $270 million.
INVESTING CASH FLOW
Capital and investment expenditures totaled $230.3 million for the three months
ended March 31, 1998, compared with $78.4 million for the same period in 1997.
Increased capital and investment expenditures during the period were primarily
due to business expansion for the Natural Gas Transmission and the Energy
Services segments, specifically Field Services and Global Asset Development.
FINANCING CASH FLOW
Dividends and debt repayments, along with operating and investing requirements,
are expected to be funded by cash from operations and borrowings from Duke
Capital Corporation (Duke Capital). The Company is seeking to significantly grow
its Energy Services businesses, which will likely require additional financing
to be issued by Duke Capital. The Company plans to fund Energy Services growth
opportunities through a combination of internally generated cash and external
debt. Debt financing will be obtained through Duke Capital's commercial paper
program and by accessing the capital markets. In connection with its plans to
access the capital markets, Duke Capital filed a $1 billion shelf registration
with the Securities and Exchange Commission during 1998.
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
For information concerning litigation and other contingencies, see Note 3 to the
Consolidated Financial Statements.
ITEM 5. OTHER INFORMATION.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may make statements regarding its assumptions,
projections, expectations, intentions or beliefs about future events. These
statements are intended as "forward-looking statements" under the Private
Securities Litigation Reform Act of 1995. The Company cautions that assumptions,
projections, expectations, intentions or beliefs about future events may and
often do vary from actual results and the differences between assumptions,
projections, expectations, intentions or beliefs and actual results can be
material. Accordingly, there can be no assurance that actual results will not
differ materially from those expressed or implied by the forward-looking
statements. The following are some of the factors that could cause actual
achievements and events to differ materially from those expressed or implied in
such forward-looking statements: state and federal legislative and regulatory
initiatives that affect cost and investment recovery, have an impact on rate
structures, and affect the speed and degree to which competition enters the
electric and natural gas industries; industrial, commercial and residential
growth in the service territories of the Company and its subsidiaries; the
weather and other natural phenomena; the timing and extent of changes in
commodity prices and interest rates; changes in environmental and other laws and
regulations to which the Company and its subsidiaries are subject or other
external factors over which the Company has no control; the results of financing
efforts; growth in opportunities for the Company's subsidiaries; and the effect
of the Company's accounting policies, in each case during the periods covered by
the forward-looking statements.
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 no reports on Form 8-K during the first quarter of 1998.
10
<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
May 15, 1998 /s/ Richard J. Osborne
----------------------
Richard J. Osborne
Senior Vice President and
Chief Financial Officer
11
<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
March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000351696
<NAME> PANENERGY CORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 36,200
<SECURITIES> 0
<RECEIVABLES> 1,344,300
<ALLOWANCES> 0
<INVENTORY> 118,800
<CURRENT-ASSETS> 2,378,500
<PP&E> 9,389,200
<DEPRECIATION> 3,691,600
<TOTAL-ASSETS> 10,423,500
<CURRENT-LIABILITIES> 2,913,700
<BONDS> 1,969,600
0
0
<COMMON> 151,800
<OTHER-SE> 3,239,500
<TOTAL-LIABILITY-AND-EQUITY> 10,423,500
<SALES> 2,513,400
<TOTAL-REVENUES> 3,066,100
<CGS> 2,406,400
<TOTAL-COSTS> 2,723,700
<OTHER-EXPENSES> 103,600
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 43,400
<INCOME-PRETAX> 284,700
<INCOME-TAX> 86,700
<INCOME-CONTINUING> 145,500
<DISCONTINUED> 0
<EXTRAORDINARY> 8,000
<CHANGES> 0
<NET-INCOME> 137,500
<EPS-PRIMARY> 0 <F1>
<EPS-DILUTED> 0 <F1>
<FN>
<F1>Not meaningful since PanEnergy Corp is a wholly-owned subsidiary.
</FN>
</TABLE>
