Page 1 of 27
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1994
Commission File Number 1-3751
NorAm Energy Corp.
(Exact name of registrant as specified in its charter)
DELAWARE 72-0120530
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
NorAm Energy Corp.
1600 Smith Street
Houston, Texas 77002
(Address of principal executive offices)
(713) 654-5699
(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
Outstanding Common Stock, $.625 Par Value
at November 4, 1994 - 122,481,280
Exhibit Index Appears on Page 26<PAGE>
Page 2
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheet - September 30, 1994 and
1993 and December 31, 1993 4
Consolidated Statement of Income - Three Months Ended
September 30, 1994 and 1993 and Nine Months Ended
September 30, 1994 and 1993 5
Statement of Consolidated Cash Flows - Nine Months
Ended September 30, 1994 and 1993 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 25
Item 6. Exhibits and Reports on Form 8-K 26
Signature 27<PAGE>
Page 3
Part I. Financial Information
The consolidated financial statements of the Company
included herein have been prepared, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and notes normally included in
financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, although the Company
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Report
on Form 10-K for the year ended December 31, 1993.<PAGE>
Page 4
NorAm Energy Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in thousands of dollars)
(unaudited)
ASSETS September 30 December 31 September 30
1994 1993 1993
PROPERTY, PLANT AND EQUIPMENT $ 3,678,886 $ 3,593,861 $ 3,513,713
Less Accumulated depreciation 1,405,918 1,327,725 1,291,285
and amortization
2,272,968 2,266,136 2,222,428
INVESTMENTS AND OTHER ASSETS 809,929 856,552 1,014,094
(Note C)
CURRENT ASSETS
Cash and cash equivalents 11,733 14,910 17,555
Accounts and notes receivable 74,584 314,487 131,989
Deferred income taxes 13,198 12,976 13,641
Inventories (Note D) 134,564 153,815 162,126
Gas purchased in advance of 29,001 35,998 18,214
delivery
Other current assets 55,573 16,158 54,915
318,653 548,344 398,440
DEFERRED CHARGES 47,332 56,756 59,167
TOTAL ASSETS $ 3,448,88 $ 3,727,788 $ 3,694,129
LIABILITIES AND STOCKHOLDERS'
EQUITY
Stockholders' equity
Preferred stock $ 130,000 $ 130,000 $ 130,000
Common stock 76,546 76,476 76,468
Paid-in capital 868,372 867,641 867,546
Accumulated deficit (370,698) (366,080) (350,965)
Total Stockholders' Equity 704,220 708,037 723,049
Long-term debt, less current 1,604,104 1,629,364 1,622,763
maturities
CURRENT LIABILITIES
Current maturities of long- 15,600 97,400 110,000
term debt
Notes payable 100,000 95,000 35,000
Gas accounts payable 127,877 267,279 168,808
Other accounts payable 169,234 190,042 213,190
Income taxes payable (8,549) 12,912 18,919
Interest payable 40,117 44,677 40,523
General taxes 46,414 50,111 48,372
Customers' deposits 45,054 46,921 40,515
Other current liabilities 88,445 98,881 85,928
624,192 903,223 761,255
OTHER LIABILITIES AND DEFERRED
CREDITS
Accumulated deferred income 257,539 225,243 227,141
taxes
Other deferred credits and 258,827 261,921 359,921
noncurrent liabilities
516,366 487,164 587,062<PAGE>
Page 5
TOTAL LIABILITIES AND $ 3,448,882 $ 3,727,788 $ 3,694,129
STOCKHOLDERS' EQUITY
The Notes to Financial Statements are an integral part of this
statement.<PAGE>
Page 6
NorAm Energy Corp. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(in thousands of dollars except per share amounts)
(unaudited)
Three Months Nine Months
Ended September 30 Ended September 30
1994 1993 1994 1993
Operating Revenues $460,559 $457,087 $2,088,365 $2,081,539
Operating Expenses
Cost of natural gas purchased, 264,192 264,065 1,329,724 1,309,859
net
Operating, maintenance, cost of 128,392 129,917 384,035 416,668
sales & other
Depreciation and amortization 38,307 37,266 113,792 114,276
Taxes other than income taxes 22,287 23,756 77,838 79,593
453,178 455,004 1,905,389 1,920,396
Operating Income 7,381 2,083 182,976 161,143
Other (Income) and Deductions
Interest expense, net 43,272 41,042 126,974 130,271
Gain from sale of assets - - - (44,555)
Other, net 1,856 (1) 8,097 (9,431)
45,128 41,041 135,071 76,285
Income (Loss) Before Income Taxes (37,747) (38,958) 47,905 84,858
Provision for Income Taxes (16,090) (14,397) 20,450 40,705
(Benefit) (Note E)
Income (Loss) Before Extraordinary (21,657) (24,561) 27,455 44,153
Item
Extraordinary loss, less taxes - (56) (517) (3,467)
Net Income (Loss) (21,657) (24,617) 26,938 40,686
Preferred dividend requirement 1,950 1,950 5,850 5,850
Balance Available to Common Stock $(23,607) $(26,567) $21,088 $34,836
Per Share Data:
Before extraordinary item $(0.19) $(0.22) $0.18 $0.31
Extraordinary loss, less taxes - (0.00) (0.01) (0.03)
Earnings per Common Share $(0.19) $(0.22) $0.17 $0.28
Average Common Shares
Outstanding (in thousands) 122,442 122,346 122,401 122,287
Cash Dividends per Common Share $0.07 $0.07 $0.21 $0.21<PAGE>
Page 7
The Notes to Financial Statements are an integral part of this
statement.<PAGE>
Page 8
NorAm Energy Corp. and Subsidiaries
STATEMENT OF CONSOLIDATED CASH FLOWS
Increase(Decrease) in Cash and Cash Equivalents
(in thousands of dollars)
(unaudited)
Nine Months
Ended September 30
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 26,938 $ 40,686
Adjustments to reconcile net income to
cash flow:
Depreciation and amortization 113,792 114,276
Deferred income taxes 32,098 31,473
Gain from sale of assets - (44,555)
Extraordinary loss, less taxes 517 3,467
Other (578) (17,461)
Changes in certain assets and
liabilities, net of noncash
transactions and the effects of
acquisitions and dispositions
(Note F) 51,353 (6,254)
Net cash provided by operating 224,120 121,632
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (121,100) (104,400)
Sale of distribution properties 23,172 96,026
Exchange of distribution properties - (38,000)
Sale of LIG, net of related - 169,950
expenditures
Other asset sales 12,315 -
Other, net 5,299 (33,669)
Net cash provided by (used in) (80,314) 89,907
investing activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Retirements and reacquisitions of (107,577) (171,807)
long-term debt
Decrease in overdrafts (12,850) (51,871)
Other interim debt borrowings 5,000 35,000
Common and preferred stock dividends (31,556) (31,531)
Net cash used in financing (146,983) (220,209)
activities
Net decrease in cash (3,177) (8,670)
Cash and cash equivalents - 14,910 26,225
beginning of period
Cash and cash equivalents - $ 11,733 $ 17,555
end of period
The Notes to Financial Statements are an integral part of this
statement.<PAGE>
Page 9
Item 1. Financial Statements (continued)
Notes to Consolidated Financial Statements
A. In the opinion of Management, all adjustments (consisting
solely of normal recurring accruals, except as explicitly
described herein) necessary for a fair presentation of
results of operations for the periods presented have been
included in the accompanying Consolidated Financial
Statements. Because of the seasonal nature of the Company's
operations, among other factors, the results of operations
for the periods presented are not necessarily indicative of
the results which will be achieved for an entire year. In
the accompanying Consolidated Financial Statements, certain
prior period amounts have been reclassified to conform to
current presentation.
B. The Company's rate-regulated divisions/subsidiaries bill
customers on a monthly cycle billing basis. Revenues are
recorded on an accrual basis, including an estimate for gas
and related services delivered but unbilled at the end of
each accounting period.
C. "Investments and other assets" as presented on the
accompanying Consolidated Balance Sheet includes the
following:
September 30 December 31 September 30
1994 1993 1993
(millions of dollars)
Goodwill $ 498.9 $ 509.5 $ 513.0
Gas purchased in advance of 47.1 79.7 157.1
delivery
Notes receivable 8.6 8.7 60.6
Pipeline assets held for 91.0 91.0 125.0
sale (Note L)
Other 164.3 167.7 158.4
$ 809.9 $ 856.6 $ 1,014.1
The decrease in "Gas purchased in advance of delivery" and
"Notes receivable" from September 30, 1993 to December 31,
1993 is principally due to balances which are no longer
outstanding as a result of a comprehensive settlement with
certain subsidiaries of Samson Investment Company, as
further discussed in the Company's 1993 Report on Form 10-K.
D. "Inventories" as presented on the accompanying Consolidated
Balance Sheet includes the following:
September 30 December 31 September 30
1994 1993 1993
(millions of dollars)
Gas in underground $ 92.8 $ 116.7 $ 122.3
storage
Materials and 41.5 36.8 39.4
supplies
Other 0.3 0.3 0.4
$ 134.6 $ 153.8 $ 162.1<PAGE>
Item 1. Financial Statements (continued) Page 10
Notes to Consolidated Financial Statements (continued)
"Gas in underground storage" at December 31, 1993 included
approximately $51.2 million of gas attributable to the
operations of Mississippi River Transmission Corporation
("MRT"). As further described in the Company's 1993 Report
on Form 10-K, this gas was sold to MRT's customers during
1994 and was replaced with customer-owned gas in accordance
with the provisions of FERC Order 636. Partially offsetting
the impact of this reduction in MRT's gas in storage from
December 31, 1993 to September 30, 1994 were (1) the normal
seasonal variation in storage at Minnegasco and (2)
increased gas in storage during 1994 by the Company's
marketing affiliate.
E. "Provision for Income Taxes(Benefit)" as presented in the
accompanying Consolidated Statement of Income includes the
following:
Three Months Nine Months
Ended Ended
September 30 September 30
1994 1993 1994 1993
(millions of dollars)
Federal
Current $ (24.3) $ 8.4 $ (12.1) $ 10.4
Deferred 8.0 (21.2) 31.6 26.4
Investment (0.2) (0.2) (0.5) (0.6)
tax credit
State
Current 0.5 0.6 0.9 (0.6)
Deferred (0.1) (2.0) 0.5 5.1
$ (16.1) $ (14.4) $ 20.4 $ 40.7
F. The caption "Changes in certain assets and liabilities, net
of noncash transactions and the effects of acquisitions and
dispositions" as presented on the accompanying Statement of
Consolidated Cash Flows includes the following:
Nine Months
Ended September 30
1994 1993
(millions of dollars)
Accounts and notes $ 239.9 $ 131.4
receivable
Inventories 20.2 (58.8)
Other current assets (37.2) 30.3
Gas accounts payable (139.4) (72.1)
Other accounts payable (7.9) (2.1)
Income taxes payable (21.5) (6.6)
Interest payable (4.6) (9.8)
General taxes payable (3.7) 2.9
Customers' deposits (1.9) (3.8)
Other current liabilities (8.3) (0.4)
Settlement of gas contract 15.8 (17.3)
disputes
$ 51.4 $ (6.3)
All highly liquid investments purchased with an original
maturity of three months or less are considered to be cash
equivalents. Following is selected supplemental cash flow
information:<PAGE>
Item 1. Financial Statements (continued) Page 11
Notes to Consolidated Financial Statements (continued)
Nine Months Ended
September 30
1994 1993
(millions of dollars)
Cash interest payments, net
of capitalized interest $ 126.9 $ 138.8
Net cash income tax
payments $ 10.1 $ 14.5
G. Earnings per common share is computed using the weighted
average number of shares of common stock outstanding during
each period and is based on earnings after deducting
preferred stock dividend requirements.
H. Under a March 1994 agreement (the "Agreement"), the Company
sells an undivided interest (currently limited to a maximum
of $235 million) in a designated pool of accounts receivable
with limited recourse. The Company has retained servicing
responsibility under the program, for which it is paid a fee
which does not differ materially from a normal servicing
fee. Total receivables sold under the Agreement but not yet
collected were approximately $146.6 million, $226.4 million
and $144.3 million, respectively, at September 30, 1994,
December 31, 1993 and September 30, 1993, which amounts have
been deducted from "Accounts and notes receivable" in the
accompanying Consolidated Balance Sheet. During the nine
months ended September 30, 1994 and 1993, the Company
experienced cash outflows of $79.8 million and $68.3
million, respectively, under the program reflecting, in
part, the Company's normal seasonal reduction in
participation. In accordance with authoritative accounting
guidelines, cash flows related to these sales of accounts
receivable are included in the accompanying Statement of
Consolidated Cash Flows under the category "Cash flows from
operating activities".
I. As further discussed in the Company's 1993 Report on Form
10-K, during 1993, the Company engaged in several
transactions involving its distribution properties,
resulting in gross cash proceeds of approximately $96
million (during the first quarter), and cash expenditures of
approximately $38 million (during the third quarter).
J. As further discussed in the Company's 1993 Report on Form
10-K, in June 1993, the Company completed the sale of
Louisiana Intrastate Gas Corporation ("LIG") to a subsidiary
of Equitable Resources, Inc. for $191 million in cash less
related expenditures of approximately $21.1 million, in a
transaction which did not qualify for "discontinued
operations" accounting treatment.
K. As further discussed in the Company's 1993 Report on Form
10-K, on September 1, 1993 and November 1, 1993,
respectively, NorAm Gas Transmission Company ("NGT",
formerly Arkla Energy Resources Company) and MRT implemented
restructured services pursuant to FERC Order 636.<PAGE>
Item 1. Financial Statements (continued) Page 12
Notes to Consolidated Financial Statements (continued)
L. In March 1994, the FERC issued an order approving the sale
of an ownership interest in 250 MMcf/day of capacity in
certain of the Company's natural gas transmission facilities
to ANR Pipeline Company ("ANR"), which proposed sale is
further discussed in the Company's 1993 Report on Form 10-K.
However, the FERC attached certain conditions to the
approval which are not acceptable to the Company and ANR.
Although the FERC addressed some of those conditions in a
manner favorable to the Company and ANR in an order on
rehearing issued in September, each party has filed a notice
of appeal of the orders with the D.C. Circuit Court of
Appeals. The amount advanced to the Company in
contemplation of the completion of this sale transaction has
been recorded as a liability and the assets subject to the
transaction have been segregated as "Pipeline assets held
for sale" and included with "Investments and other assets"
in the accompanying Consolidated Balance Sheet, see Note C.
M. In May 1994, the FERC voted to allow the spin-down of the
Company's gathering systems into a deregulated subsidiary.
A final order will be effective when the FERC (1) is
satisfied that the Company has met certain open-access
conditions and (2) has reviewed and approved the Company's
minor compliance-type filings to ensure that no customer is
denied an opportunity to receive gathering services after
the spin-down. The FERC also required that the Company
offer to provide service to all customers on reasonable
terms and conditions before implementing the change. The
Company currently expects that the conditions will be
satisfied and the order will become final later this year.
N. In July 1994, the Company amended its registration statement
filed with the Securities and Exchange Commission in March
1994, to convert it to a Rule 415 or "shelf" offering (the
"Shelf"). The Shelf will allow the Company to issue up to
14.95 million shares of additional common stock for a period
of up to two years from the effective date. The net
proceeds from shares issued pursuant to the Shelf are
expected to be used for general corporate purposes.
In August 1994, the Company filed a registration statement
(the "Statement") with the Securities and Exchange
Commission which will allow the issuance of up to 5 million
shares of the Company's common stock in conjunction with a
direct stock purchase program and updated dividend
reinvestment program over a two-year period beginning with
the effective date of the Statement (October 1994). The net
proceeds from shares issued pursuant to the Statement are
expected to be used for general corporate purposes.
O. In early November 1994, the Company replaced its existing
$400 million revolving credit facility with a similar $400
million facility (the "New Facility") which extends through
October 31, 1997. The interest rate terms of the New
Facility are the same as the prior facility, although the
fees associated with the New Facility are lower and certain
of the restrictions are different, see the discussion under
"Liquidity and Capital Resources" in "Management's
Discussion and Analysis of Financial Condition and Results
of Operations" elsewhere herein.<PAGE>
Item 1. Financial Statements (continued) Page 13
Notes to Consolidated Financial Statements (continued)
P. On September 30, 1994, the Company completed the sale of its
Kansas properties (and certain related pipeline facilities)
to Utilicorp United for approximately $23 million in cash.
Q. As further discussed in the Company's 1993 Report on Form
10-K, the Company, due in part to its acquisition of
Minnegasco in November 1990, is in the process of
identifying and providing for remediation of various sites
where gas was manufactured from the late 1800's to
approximately 1960. The Company has provided an accrual
(undiscounted and without regard to potential third-party
recoveries) for expected costs of remediation (which largely
are expected to be recovered through the regulatory process)
based on the latest available information.
In addition, the Company, as well as other similarly
situated firms in the industry, is investigating the
possibility that it may elect or be required to perform
remediation of various sites where meters containing mercury
were disposed of improperly or where mercury from such
meters may have leaked or been improperly disposed of.
While the Company's evaluation of this issue is in its
preliminary stages, it is likely that compliance costs will
be identified and become subject to reasonable
quantification. To the extent that such potential costs are
quantified, the Company will provide an appropriate accrual
and, to the extent justified based on the circumstances
within each of the Company's regulatory jurisdictions, set
up regulatory assets in anticipation of recovery through the
ratemaking process.
On October 24, 1994, the United States Environmental
Protection Agency advised MRT that it, together with a
number of other parties, had been named a potentially
responsible party under federal law with respect to a
landfill site in West Memphis, Arkansas, see Note R.
While the nature of environmental contingencies makes
complete evaluation impractical, the Company is currently
aware of no other environmental matter which could
reasonably be expected to have a material impact on its
results of operations or financial position.
R. On October 15, 1992, the Resolution Trust Corporation
("RTC") filed suit in United States District Court for the
Southern District of Texas, Houston Division, against the
Company for alleged harm resulting from the 1989 failure of
University Savings Association ("USA"), a thrift institution
in Houston, Texas. The RTC claimed that the Company was
liable as a successor-in-interest to Entex, Inc. which
merged with the Company in 1988, after Entex's sale of USA
in 1987. The suit alleged that certain former officers and
directors of USA were responsible for a breach of contract,
breaches of fiduciary duties, negligence and gross
negligence in conducting USA's business affairs. The RTC
also alleged that Entex, which owned University until 1987,
was responsible for some of that alleged wrongdoing, as well
as for having allegedly misrepresented facts to state and
federal regulators in connection with the sale of USA to
certain USA officers and directors in 1987. Compensatory
damages of at least $535 million were originally alleged in<PAGE>
Item 1. Financial Statements (continued) Page 14
Notes to Consolidated Financial Statements (continued)
the case. The Company, Entex and the defendant directors
filed answers denying the material allegations of the suit
and interposing certain defenses. On June 3, 1993, the
Court dismissed a number of claims discussed above, though
it allowed the RTC to file an amended complaint with respect
to some of the dismissed claims. On July 9, 1993, the Court
entered an order denying a motion filed by the RTC to
reconsider the Court's order dated June 3, 1993. On August
12, 1993, in response to the Court order allowing the RTC to
replead certain claims, the RTC filed its second amended
complaint in which compensatory damages of at least $520
million are alleged. The Company, Entex and the defendant
directors filed various motions in response to the second
amended complaint. In a hearing held on May 12, 1994, the
Court heard arguments on these motions. On August 30, 1994,
the Court dismissed all causes of action against the Company
in this lawsuit. The Court permitted the RTC to pursue
certain causes of action against the individual officers and
directors, if the RTC could demonstrate gross negligence, or
an entire or total want of care, or total abdication of
directorial duties. The Court did not grant the RTC the
right to replead any of its causes of action. At that time,
the Company did not know if the RTC planned to appeal the
Court's order. The Company and each of the individual
defendants have now entered into a final settlement
agreement with the RTC that brings an end to the lawsuit.
The Company and the other defendants agreed to settle the
litigation for $9.1 million in order to avoid the risks,
costs and distraction of a possible appeal by the RTC. The
net effect of the settlement as adjusted for the insurance
recovery, legal expenses incurred and the legal expense
reserve previously accrued will be reflected in the fourth
quarter as a loss from discontinued operations and will not
be material.
On August 6, 1993, the Company, its former exploration and
production subsidiary ("E&P") and Arkoma Production Company
("Arkoma"), a subsidiary of E&P, were named as defendants in
a lawsuit (the "State Claim") filed in the Circuit Court of
Independence County, Arkansas. This complaint alleges that
the Company, E&P and Arkoma, acted to defraud ratepayers in
a series of transactions arising out of a 1982 agreement
between the Company and Arkoma. On behalf of a purported
class composed of the Company's ratepayers, plaintiffs have
alleged that the Company, E&P and Arkoma are responsible for
common law fraud and violation of an Arkansas law regarding
gas companies, and are seeking a total of $100 million in
actual damages and $300 million in punitive damages. On
November 1, 1993, the Company filed a motion to dismiss the
claim. In a hearing held on May 19, 1994, the Court heard
arguments on this motion. On September 20, 1994, the Court
entered an order granting the Company's motion to dismiss.
The plaintiffs have filed notice of their intention to
appeal this decision. The underlying facts forming the
basis of the allegations in the State Claim also formed the
basis of allegations in a lawsuit (the "Federal Claim")
filed in September 1990 in the United States District Court
for the Eastern District of Arkansas, by the same
plaintiffs. In August 1992, the Court entered an order
granting the Company's motion to dismiss the Federal Claim,
and the order was affirmed by the United States Court of<PAGE>
Item 1. Financial Statements (continued) Page 15
Notes to Consolidated Financial Statements (continued)
Appeals, Eighth Circuit in April 1993. This dismissal did
not bar the plaintiffs from filing the State Claim in a
state court based on allegations of violation of state law.
Since the State Claim is based on essentially the same
underlying factual basis as the Federal Claim and in light
of the Court's order granting the Company's motion to
dismiss, the Company continues to believe that the State
Claim is without merit, intends to vigorously contest any
appeal of the order granting dismissal and does not believe
that the outcome will have a material adverse effect on the
financial position or results of operations of the Company.
On October 24, 1994, the United States Environmental
Protection Agency advised Mississippi River Transmission
Corporation ("MRT"), a wholly-owned subsidiary of the
Company, that MRT along with a number of other companies
have been named under federal law as potentially responsible
parties for a landfill site in West Memphis, Arkansas and
may be required to share in the cost of remediation of this
site. However, considering the information currently known
about the site and the involvement of MRT, the Company does
not believe that this matter will have a material adverse
effect on the financial position or results of operations of
the Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
The Company's principal operations are in natural gas
distribution ("Distribution") and natural gas transmission,
including gathering and storage ("Pipeline" or "Natural Gas
Pipeline"). The Company's legal structure consists of a number
of divisions and subsidiaries, all of which are wholly-owned
except for Itron, Inc., of which the Company owns common stock
representing a fully diluted interest of approximately 15.6%.
As further described in the Company's 1993 Report on Form 10-K,
during 1993, the Company sold Louisiana Intrastate Gas
Corporation and engaged in several transactions with respect to
its distribution properties.
Significant Trends
The Company's results of operations in recent years have
shown a trend of increased operating revenues with less than
proportionate increases in operating income, largely due to the
declining margins in certain portions of the Company's interstate
pipeline business, although recent results reflect the change
from sales to transportation in the Company's interstate pipeline
business which has resulted from the implementation of FERC Order
636 and, in addition, indicate an improvement over the historical
trend, see the discussion for "Natural Gas Pipeline" under
"Material Changes in the Results of Operations" elsewhere herein.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 16
Condition and Results of Operations (continued)
Recent Developments
Equity Registration
In August 1994, the Company filed a registration statement
(the "Statement") with the Securities and Exchange Commission
which will allow the issuance of up to 5 million shares of the
Company's common stock in conjunction with a direct stock
purchase program and updated dividend reinvestment program over a
two-year period beginning with the effective date of the
Statement (October 1994). The net proceeds from shares issued
pursuant to the Statement are expected to be used for general
corporate purposes.
Litigation Settlement
On November 9, 1994, the Company announced that it had
reached a final resolution of the litigation involving the
Resolution Trust Corporation, see "Legal Proceedings" elsewhere
herein.
Credit Facility
In November 1994, the Company replaced its existing $400
million credit facility with a similar facility which expires in
October 1997, see "Net Cash Flows From Financing Activities"
under "Liquidity and Capital Resources" elsewhere herein.
Sale of Kansas Facilities
On September 30, 1994, the Company completed the sale of its
Kansas distribution properties (and certain related pipeline
facilities) for approximately $23 million in cash, see
"Distribution" under "Material Changes in the Results of
Operations" for the nine months ended September 30, 1994 and 1993
elsewhere herein.
Environmental Matter
Mississippi River Transmission Corporation ("MRT") was
recently named a potentially responsible party (among others) in
conjunction with a landfill site, see "Legal Proceedings"
elsewhere herein.
Material Changes in the Results of Operations
The Company's results of operations are seasonal due to
seasonal fluctuations in the demand for and, to a lesser extent,
the price of natural gas and, accordingly, the results of
operations for interim periods are not necessarily indicative of
the results to be expected for an entire year. As reported in
the Company's 1993 Report on Form 10-K, however, the Company's
regulated businesses have obtained rate design changes which have
lessened the seasonality of the Company's results of operations
and further such changes are anticipated. In addition to the
demand for and price of natural gas, the Company's results of
operations are significantly affected by regulatory actions,
competition and, below the operating income line, by the level of
its borrowings and interest rates thereon. Following are
detailed discussions of material changes in the results of
operations by business unit:<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 17
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
(1) COMPARISON OF THE THIRD QUARTER OF 1994 TO THE THIRD QUARTER
OF 1993
Quarter Ended
September 30
1994 1993 Increase(Decrease)
Operating (millions of dollars) $ %
Income(Loss)
Pipeline $ 22.1 $ 16.8 $ 5.3 31.5
Distribution (11.8) (6.8) (5.0) (73.5)
Corporate and (2.9) (8.0) 5.1 63.8
Other
Consolidated $ 7.4 $ 2.0 $ 5.4 270.0<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 18
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
NATURAL GAS PIPELINE
As further discussed in the Company's 1993 Report on Form
10-K, on September 1, 1993 and November 1, 1993, respectively,
NorAm Gas Transmission Company ("NGT", formerly Arkla Energy
Resources Company) and MRT implemented restructured services
pursuant to FERC Order 636. As a result of this restructuring of
services, certain financial line items and statistical data are
not comparable when periods before and after Order 636
implementation are compared. This lack of comparability is due,
in part, to the switch from sales to transportation which has the
effect of removing the cost of gas from revenues and expenses.
At December 31, 1992, the Company discontinued the application of
Statement of Financial Accounting Standards No. 71, "Accounting
for the Effects of Certain Types of Regulation", ("SFAS71") to
NGT, see the discussion under "Natural Gas Pipeline" for the nine
months ended September 30, 1994 and 1993 elsewhere herein. The
Company engages in hedging activities with respect to certain of
its natural gas transactions, see the discussion under "Natural
Gas Pipeline" for the nine months ended September 30, 1994 and
1993 elsewhere herein.
In May 1994, the FERC voted to approve the spin-down of the
Company's gathering systems into a deregulated subsidiary. The
Company has a pending sale transaction with respect to 250
MMcf/day of capacity in certain of its natural gas transmission
facilities. For additional information on these matters, see the
discussion under "Natural Gas Pipeline" for the nine months ended
September 30, 1994 and 1993 elsewhere herein.<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 19
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
Quarter Ended
September 30
1994 1993 Increase(Decrease)
FINANCIAL RESULTS (millions of dollars) $ %
Gas sales revenue
Sales to Distribution $ 29.7 $ 58.2 $ (28.5) (49.0)
Industrial sales and 119.1 136.0 (16.9) (12.4)
other
Total gas sales 148.8 194.2 (45.4) (23.4)
revenue
Transportation revenue
Affiliated 21.6 9.4 12.2 129.8
Unaffiliated 42.3 20.7 21.6 104.3
Total transportation 63.9 30.1 33.8 112.3
revenue
Total operating 212.7 224.3 (11.6) (5.2)
revenue
Purchased gas cost
Affiliated 0.0 2.1 (2.1) (100.0)
Unaffiliated 137.8 151.3 (13.5) (8.9)
Operations and 24.9 25.2 (0.3) (1.2)
maintenance expense
Depreciation and 10.7 10.8 (0.1) (0.9)
amortization
Other operating expenses, 17.2 18.1 (0.9) (5.0)
net
Operating income $ 22.1 $ 16.8 $ 5.3 31.5
OPERATING STATISTICS (million MMBtu)
Sales to Distribution 14.8 4.5 10.3 228.9
Industrial sales and 39.6 22.9 16.7 72.9
other
Total sales 54.4 27.4 27.0 98.5
Transportation for 13.2 16.6 (3.4) (20.5)
Distribution
Transportation for others 150.2 163.0 (12.8) (7.9)
Total transportation 163.4 179.6 (16.2) (9.0)
Less: Order 636 (15.4) (6.4) (9.0) (140.6)
elimination(1)
Total throughput 202.4 200.6 1.8 0.9
(1) Prior to the implementation of unbundled services
pursuant to FERC Order 636, Pipeline's sales rate covered
all related services, including transportation to the
customer's facility. After FERC Order 636 implementation,
when Pipeline acts as a merchant, the sales transaction is
independent of (and may not include) the transportation of
the volume sold. Therefore, when the sold volumes are also
transported by Pipeline, the throughput statistics will
include the same physical volumes in both the sales and
transportation categories, requiring an elimination to
prevent the overstatement of actual total throughput.
NGT and MRT began offering restructured services pursuant to
FERC Order 636 in September and November 1993, respectively.
This restructuring of services required pipelines to offer<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 20
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
separate storage, transportation and gathering services, the fee
for which services was previously billed and collected through
the total sales rate. One effect of this "unbundling" is to
shift operating revenues from "Gas sales revenue" to
"Transportation revenue" and to effectively reduce total revenues
because the commodity cost is no longer included in the service
rates. This shift, somewhat offset by increased sales to
Distribution by the marketing affiliate, is the primary reason
why "Sales to Distribution" decreased by $28.5 million (49.0%) in
spite of the fact that sales volumes increased by 10.3 million
MMBtu. This shift of services had a similar effect on
"Industrial sales and other" which decreased by $16.9 million
while related sales volumes increased by 16.7 million MMBtu
(72.9%). Another factor contributing to the 16.7 million MMBtu
volume increase is higher third-party sales by the marketing
affiliate which accounted for 12.3 million MMBtu (74%) of the
increase. As a result of the change in interstate pipeline rate
design to "straight fixed variable", a large portion of total
costs are included in the demand (fixed) component of the
transportation rate. Accordingly, when volumes actually
transported are less than the total contracted demand level,
revenues will be higher for the same volume than under prior rate
design which placed more costs in the volumetric portion of the
rate. Principally for this reason, transportation revenues in
1994 increased by $33.8 million (112.3%) while related
transportation volumes decreased by 16.2 million MMBtu (9.0%).
"Purchased gas cost" decreased by $15.6 million (10.2%)
primarily due to significantly lower spot market prices in the
third quarter of 1994 resulting in lower gas cost reported by the
marketing affiliate. Additionally, the settlement of certain
above market purchase contracts during 1993 also served to reduce
1994 gas purchase cost. Other operating expenses decreased by
$0.9 million (5.0%). This decrease is partially attributable to
lower property taxes on gas in storage inventories which are now
held by customers under FERC Order 636.
DISTRIBUTION
As further discussed in the Company's 1993 Report on Form
10-K, during 1993, the Company engaged in several transactions
with respect to its distribution properties, one of which was
recently completed as discussed under "Distribution" for the nine
months ended September 30, 1994 and 1993 elsewhere herein.<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 21
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
Quarter Ended
September 30
1994 1993 Increase(Decrease)
FINANCIAL RESULTS (millions of dollars) $ %
Natural gas sales $ 287.6 $ 288.2 $ (0.6) (0.2)
Transportation 3.7 5.1 (1.4) (27.5)
Other revenue 4.8 4.5 0.3 6.7
Total operating revenue 296.1 297.8 (1.7) (0.6)
Purchased gas cost
Unaffiliated 157.0 155.3 1.7 1.1
Affiliated 19.5 25.6 (6.1) (23.8)
O&M, G&A and cost of sales 90.9 83.9 7.0 8.3
Depreciation and 22.1 20.7 1.4 6.8
amortization
Other operating expenses 18.4 19.1 (0.7) (3.7)
Operating income $ (11.8) $ (6.8) $ (5.0) (73.5)
OPERATING STATISTICS (billions of cubic feet)
Residential sales 15.8 16.1 (0.3) (1.9)
Commercial sales 15.6 15.0 0.6 4.0
Industrial sales 34.6 27.7 6.9 24.9
Sales for resale 5.5 2.7 2.8 103.7
Transportation 14.5 17.9 (3.4) (19.0)
Total throughput 86.0 79.4 6.6 8.3
DEGREE DAYS Normal 1994 1993
ALG 8 19 15
Entex 3 1 1
Minnegasco 198 158 320
Distribution operating results which, due to the cyclical
nature of the residential and commercial demand for natural gas
are routinely negative in the third quarter, declined from a loss
of $6.8 million in the third quarter of 1993 to a loss of $11.8
million in the third quarter of 1994.
Operating revenues decreased slightly from $297.8 million in
the third quarter of 1993 to $296.1 million in the third quarter
of 1994 due primarily to warmer 1994 weather in Minnegasco's
service area. As a result, total weather-sensitive residential
and commercial sales volumes increased less than 1% between
periods, despite an increase in the average number of customers.
However, principally due to the continued improvement in the
economic conditions in Entex's service area, the industrial sales
volume increased 6.9 Bcf (24.9%), and the lower-margin sales for
resale increased by 2.8 Bcf.
Total purchased gas cost decreased $4.4 million in the third
quarter of 1994 due to a decrease in the average cost of
purchased gas. Operating expenses, exclusive of purchased gas
cost, increased by $7.7 million (6.2%) over the third quarter of
1993 principally due to (1) increased "O&M, G&A and cost of
sales" reflecting (i) increased G&A costs for salaries and
benefits and (ii) increased O&M expense related to increased<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 22
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
throughput and (2) increased depreciation and amortization
expense due to increased investment.
CORPORATE AND OTHER
The $5.1 million decrease in the operating loss from the
third quarter of 1993 to the third quarter of 1994 was
principally due to (1) 1993 expense for certain intercompany
billings which were not contractually permitted to be recorded at
their full face value by the receiving business unit, which
expense did not recur in 1994 and (2) the 1993 accrual of
estimated costs for facilities consolidation, relocation and
related expenses.
CONSOLIDATED
The consolidated net loss declined from $24.6 million in the
third quarter of 1993 to a loss of $21.6 million in the
corresponding quarter of 1994, an improvement of $3.0 million,
while (as discussed above) operating income increased by $5.4
million during the same period. The principal reasons for this
increased net expense below the operating income line were as
follows:
* The increase of $2.2 million in third quarter
1994 interest expense, principally due to an
increase in short-term interest rates.
* The decrease of $1.9 million in "Other, net"
for 1994, principally due to the 1994 impact
of decreases in interest income and appliance
service revenue.
These unfavorable impacts were partially offset by:
* The increase of $1.7 million in the 1994
income tax benefit, reflecting an increase in
the 1994 interim effective tax rate.
(2) COMPARISON OF THE FIRST NINE MONTHS OF 1994 TO THE FIRST
NINE MONTHS OF 1993
Nine Months Ended
September 30
1994 1993 Increase(Decrease)
Operating (millions of dollars) $ %
Income(Loss)
Pipeline $ 81.1 $ 62.1 $ 19.0 30.6
(excluding LIG)
Distribution 107.2 112.8 (5.6) (5.0)
Corporate and (5.3) (19.4) 14.1 72.7
Other
Sub Total 183.0 155.5 27.5 17.7
LIG - 5.6 (5.6) N/A
Consolidated $ 183.0 $ 161.1 $ 21.9 13.6<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 23
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
NATURAL GAS PIPELINE
As discussed in the Company's Reports on Form 10-K for the
years ended December 31, 1993 and 1992, the Company historically
has applied the provisions of SFAS71 to all of its rate regulated
businesses. With respect to the Company's NGT subsidiary,
however, the Company concluded that, effective as of December 31,
1992, continued application of SFAS71 was no longer appropriate.
The Company based its conclusion on its analysis of NGT's
regulatory and economic environment and the extent to which such
environment would allow NGT to collect its cost-based rates. The
Company had begun its analysis when it became apparent that
changes in NGT's regulatory environment, largely due to the
actions of the FERC, were subjecting NGT to increasing
competitive pressures, resulting in significant underrecovery of
NGT's cost-based revenue requirements. The Company determined
that it was unlikely that it could take steps through the
regulatory process or otherwise which would cause NGT to return
to a situation in which the Company could conclude that
collection of NGT's cost-based rates was probable.
Accordingly, at December 31, 1992, the Company ceased to
apply the provisions of SFAS71 to NGT's transactions and
balances, which accounting change was implemented pursuant to
Statement of Financial Accounting Standards No. 101, "Regulated
Enterprises - Accounting for the Discontinuance of Application of
FASB Statement No. 71" ("SFAS101"). The methodology for this
accounting change is contained within SFAS101 and, simply stated,
requires the removal from NGT's balance sheet of the impact of
the effects of the actions of regulators. More specifically, the
Company (1) identified and wrote-off those NGT assets which would
not be recognized as assets by non-regulated enterprises,
principally amounts associated with take-or-pay settlement costs
and deferred pursuant to FERC Order 528 ($237.9 million), (2)
wrote down certain current assets based on "lower of cost or
market" rules applicable to nonregulated enterprises ($27.0
million), (3) accrued for expected costs in excess of current
market value for certain gas purchase contracts for which
recovery could no longer be assumed through regulatory mechanisms
($19.9 million) and (4) wrote down certain of its gathering
assets pursuant to impairment guidelines applicable to
enterprises in general ($29.7 million). This pre-tax charge,
which totalled $314.5 million ($195.0 million after-tax), is
shown in the Company's Statement of Consolidated Income for 1992
under the caption "Extraordinary items, less taxes". This charge
had no effect on NGT's ability to include the underlying costs in
its regulated rates or on its ability to collect such rates from
its customers.
The Company concluded that its Distribution divisions
continued to qualify for the application of SFAS71 because their
exposure to competition has had minimal effect and is limited by
the nature of their business, and because their regulatory
climate has changed only modestly from its historical structure.
Similarly, the Company concluded that continued application of
SFAS71 to its MRT interstate pipeline subsidiary was appropriate
because, unlike NGT, MRT's "long-line" configuration and customer
base have sheltered it to a large degree from the negative<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 24
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
impacts which regulatory change and related increased competition
have had and continue to have on NGT.
In May 1994, the FERC voted to allow the spin-down of the
Company's gathering systems into a deregulated subsidiary. A
final order will be effective when the FERC (1) is satisfied that
the Company has met certain open-access conditions and (2) has
reviewed and approved the Company's minor compliance-type filings
to ensure that no customer is denied an opportunity to receive
gathering services after the spin-down. FERC also required that
the Company offer to provide service to all customers on
reasonable terms and conditions before implementing the change.
The Company currently expects that the conditions will be
satisfied and the order will become final later this year.
In March 1994, the FERC issued an order approving the sale
of an ownership interest in 250 MMcf/day of capacity in certain
of the Company's natural gas transmission facilities to ANR
Pipeline Company ("ANR"), which proposed sale is further
discussed in the Company's 1993 Report on Form 10-K. However,
the FERC attached certain conditions to the approval which are
not acceptable to the Company and ANR. Although the FERC
addressed some of those conditions in a manner favorable to the
Company and ANR in an order on rehearing issued in September,
each party has filed a notice of appeal of the orders with the
D.C. Circuit Court of Appeals. The amount advanced to the
Company in contemplation of the completion of this sale
transaction has been recorded as a liability and the assets
subject to the transaction have been segregated as "Pipeline
assets held for sale" and included with "Investments and other
assets" in the accompanying Consolidated Balance Sheet, see Note
C.
As discussed in the Company's 1993 Report on Form 10-K, the
Company enters into futures transactions, swaps and purchases
options in order to mitigate the risk associated with market
fluctuations in the price of natural gas and related
transportation.
With respect to the options purchased by the Company, none
of which were outstanding during the first nine months of 1993,
the notional amount outstanding increased from approximately
$56.6 million at December 31, 1993 to approximately $58.1 million
at September 30, 1994, with this increase occurring during the
first quarter of the year. Due to the fact that these options
are subject to hedge accounting, and the fact that there were
neither maturities nor terminations during 1994, there was no
effect on income from these options during 1994.
With respect to the Company's swap program which is designed
to mitigate risk associated with changes in the differential
between the market sales price at the agreed upon delivery points
and the market purchase price at the anticipated receipt points,
there were no material balances or activity during 1993. During
the three months and nine months ended September 30, 1994, there
were $0.7 million and $3.5 million, respectively, of additions to
the December 31, 1993 outstanding notional amount of $1.2
million. During the three months and nine months ended September
30, 1994, there were $1.5 million and $1.6 million, respectively,<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 25
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
of maturities. The effect of these swaps on earnings was to
increase operating income by $0.2 million and $0.4 million,
respectively, for the three months and nine months ended
September 30, 1994. The unrealized gain(loss) associated with
these swaps was $0.7 million and $(0.2) million at September 30,
1994 and 1993, respectively.
With respect to the swaps associated with the Company's
fixed price sales commitments, none of which were outstanding
during the first nine months of 1993, the notional amount of
$94.1 million at December 31, 1993 declined to $92 million, $87.7
million and $84.1 million at March 31, 1994, June 30, 1994 and
September 30, 1994, respectively. These changes principally
resulted from maturities of approximately $12.4 million during
the first three quarters of 1994. The effect of these swaps on
earnings was to decrease pre-tax income by $0.2 million and
increase pre-tax income by $0.2 million, respectively, for the
three months and nine months ended September 30, 1994. The
unrealized gain associated with these swaps was $0.6 million at
September 30, 1994.
As further discussed in the Company's 1993 Report on Form
10-K, on September 1, 1993 and November 1, 1993, respectively,
NGT and MRT implemented restructured services pursuant to FERC
Order 636. As a result of this restructuring of services,
certain financial line items and statistical data are not
comparable when periods before and after Order 636 implementation
are compared due, in part, to the switch from sales to
transportation which has the effect of removing the cost of gas
from revenues and expenses.<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 26
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
The following results and related discussion exclude the
results of operations of LIG which was sold effective June 30,
1993, as more fully described in the Company's 1993 Report on
Form 10-K. For the six months ended June 30, 1993, LIG's
operating revenues, operating income and total throughput were
$151.1 million, $5.6 million and 103.4 million MMBtu,
respectively.
Nine Months
Ended September 30
1994 1993 Increase(Decrease)
FINANCIAL RESULTS (millions of dollars) $ %
Gas sales revenue
Sales to Distribution $ 119.8 $ 214.4 $ (94.6) (44.1)
Industrial sales and 469.0 448.1 20.9 4.7
other
Total gas sales 588.8 662.5 (73.7) (11.1)
revenue
Transportation revenue
Affiliated 74.7 16.6 58.1 350.0
Unaffiliated 117.0 65.8 51.2 77.8
Total transportation 191.7 82.4 109.3 132.6
revenue
Total operating 780.5 744.9 35.6 4.8
revenue
Purchased gas cost
Affiliated 3.5 3.2 0.3 9.4
Unaffiliated 538.7 515.9 22.8 4.4
Operations and 72.6 76.8 (4.2) (5.5)
maintenance expense
Depreciation and 32.2 32.3 (0.1) (0.3)
amortization
Other operating expenses, 52.4 54.6 (2.2) (4.0)
net
Operating income $ 81.1 $ 62.1 $ 19.0 30.6
OPERATING STATISTICS (million MMBtu)
Sales to Distribution 54.1 52.8 1.3 2.5
Industrial sales and 108.7 80.5 28.2 35.0
other
Total sales 162.8 133.3 29.5 22.1
Transportation for 73.0 49.1 23.9 48.7
Distribution
Transportation for others 560.4 507.6 52.8 10.4
Total transportation 633.4 556.7 76.7 13.8
Less: Order 636 (48.7) (6.4) (42.3) (660.9)
elimination(1)
Total throughput 747.5 683.6 63.9 9.3
(1) Prior to the implementation of unbundled services
pursuant to FERC Order 636, Pipeline's sales rate covered
all related services, including transportation to the
customer's facility. After FERC Order 636 implementation,
when Pipeline acts as a merchant, the sales transaction is
independent of (and may not include) the transportation of
the volume sold. Therefore, when the sold volumes are also<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 27
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
transported by Pipeline, the throughput statistics will
include the same physical volumes in both the sales and
transportation categories, requiring an elimination to
prevent the overstatement of actual total throughput.
"Sales to Distribution" decreased by $94.6 million (44.1%)
primarily due to the provision of services to Distribution in
1994 under FERC Order 636 which tends to shift gathering, storage
and transportation services out of "Gas sales revenue" as
mentioned in the discussion for the three months ended September
30, 1994 and 1993 elsewhere herein. "Industrial sales and other"
increased by $20.9 million (4.7%) primarily due to a 34% increase
in sales volume by the marketing affiliate, partially offset by
the effect of FERC Order 636 and lower sales volumes by the
related business units. Affiliated transportation revenue
increased by $58.1 million primarily due to the unbundling of
transportation services to the distribution affiliate, which
services were previously included in the total sales rate. This
effect of unbundling was also the primary factor responsible for
the $51.2 million (77.8%) increase in third-party transportation
revenues.
Purchased gas cost increased by $23.1 million (4.5%)
primarily in support of increased sales by the marketing
affiliate, which impact was partially offset by lower sales by
the regulated business units as mentioned previously. Operation
and maintenance expense decreased by $4.2 million (5.5%)
primarily due to lower third-party transportation cost associated
with the regulated business units, partially offset by higher
transportation cost associated with higher throughput by the
marketing affiliate. "Other operating expenses, net" decreased
by $2.2 million (4.0%) primarily due to (1) a non-recurring $2.0
million accrual in 1993 for severance cost and (2) lower 1994
property taxes associated with lower gas in storage inventories
under FERC Order 636.
DISTRIBUTION
As further discussed in the Company's 1993 Report on Form
10-K, during 1993, the Company engaged in several transactions
with respect to its distribution properties. On September 30,
1994, the Company completed the sale of its Kansas distribution
properties (and certain related pipeline facilities) for
approximately $23 million in cash. These properties served over
22,000 customers and were a part of the Company's Arkla division
which, after this sale, will serve over 710,000 customers in
Arkansas, Louisiana, Oklahoma and Texas.<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 28
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
Nine Months
Ended September 30
1994 1993 Increase(Decrease)
FINANCIAL RESULTS (millions of dollars) $ %
Natural gas sales $ 1,462.4 $ 1,373.3 $ 89.1 6.5
Transportation 13.6 16.1 (2.5) (15.5)
Other revenue 18.1 17.1 1.0 5.8
Total operating revenue 1,494.1 1,406.5 87.6 6.2
Purchased gas cost
Unaffiliated 784.2 686.4 97.8 14.2
Affiliated 194.7 223.2 (28.5) (12.8)
O&M, G&A and cost of sales 278.1 259.2 18.9 7.3
Depreciation and 65.2 61.3 3.9 6.4
amortization
Other operating expenses 64.7 63.6 1.1 1.7
Operating income $ 107.2 $ 112.8 $ (5.6) (5.0)
OPERATING STATISTICS (billions of cubic feet)
Residential sales 130.7 130.6 0.1 0.1
Commercial sales 85.6 87.0 (1.4) (1.6)
Industrial sales 99.7 80.1 19.6 24.5
Sales for resale 14.2 7.1 7.1 100.0
Transportation 49.4 57.8 (8.4) (14.5)
Total throughput 379.6 362.6 17.0 4.7
DEGREE DAYS Normal 1994 1993
ALG 1,885 1,856 2,005
Entex 938 934 912
Minnegasco 4,849 5,145 5,142
Distribution operating income decreased from $112.8 million
in the first nine months of 1993 to $107.2 million in the first
nine months of 1994, reflecting increases in operating revenues
that were more than offset by corresponding increases in
operating expenses.
Operating revenues increased from $1,406.5 million in the
first nine months of 1993 to $1,494.1 million in the first nine
months of 1994 due primarily to increased industrial sales
(principally at Entex) and rate increases obtained by ALG and
Minnegasco. As a result of rate design changes which had the
effect of assigning more of Minnegasco's revenue requirements to
the minimum bill portion of its overall service rates, Minnegasco
benefitted less from the colder 1994 weather than would have been
the case under the previous rate design. However, these rate
design changes also have the effect of increasing Minnegasco's
earnings in the warmer months of the year. Industrial sales
volume increased 19.6 Bcf (24.5%), due primarily to continued
improvement in the economic conditions in Entex's service area.
Operating expenses, exclusive of purchased gas cost,
increased by $23.9 million (6.2%) in 1994 over the first nine
months of 1993 principally due to (1) increased "O&M, G&A and<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 29
Condition and Results of Operations (continued)
Material Changes in the Results of Operations (continued)
cost of sales" due to (i) increased G&A cost for salaries and
benefits and (ii) increased O&M expense due to increased
throughput, (2) increased depreciation and amortization expense
due to increased investment and (3) increased "Other operating
expenses" reflecting, in part, a difference in the method of
allocating certain franchise taxes to interim periods.
CORPORATE AND OTHER
The $14.1 million decrease in the operating loss from the
first nine months of 1993 to the first nine months of 1994 was
principally due to (1) increased 1993 expense resulting from
amounts accrued under certain employee benefit plans, (2) 1993
accruals for certain intercompany billings which were not
contractually permitted to be recorded at their full face value
by the receiving business unit, (3) a decrease in 1994 expense
related to the Company's Long-Term Incentive Plan and (4) the
1993 accrual of estimated costs for facilities consolidation,
relocation and related expenses.
CONSOLIDATED
Net income decreased from $40.7 million in the first nine
months of 1993 to $26.9 million in the corresponding period of
1994, a decrease of $13.8 million, while (as discussed above)
operating income increased by $21.9 million during the same
period. The principal reasons for this increase of $35.7 million
in net expense below the operating line were as follows:
* The inclusion in 1993 results of $44.6
million of pre-tax gains from the sale of
assets.
* The decrease of $17.5 million in "Other, net"
for 1994, principally due to (1) the 1994
impact of decreased interest income and
appliance service revenue, (2) an increase in
certain regulatory reserves during 1994 and
(3) a gain from the sale of certain other
assets in 1993.
These unfavorable impacts were partially offset by:
* The decrease of $3.3 million in 1994 interest
expense, principally due to a reduced level
of total debt.
* The decrease of $20.3 million in the 1994
provision for income taxes, reflecting a
reduced level of income before income taxes
and a lower effective tax rate.
* The decrease of $2.9 million in 1994 for the
after-tax loss due to premiums on the early
retirement of debt.<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 30
Condition and Results of Operations (continued)
Liquidity and Capital Resources
The table below illustrates the sources of the Company's
invested capital during the last five years and at September 30,
1994.
Sept. 30 December 31
INVESTED 1994 1993 1992 1991 1990 1989
CAPITAL
(millions of dollars)
Long-Term Debt $ 1,604.1 $ 1,629.4 $ 1,783.1 $ 1,551.5 $ 1,450.2 $ 1,162.3
Total Equity 704.2 708.0 712.9 948.0 1,115.4 546.1
Total 2,308.3 2,337.4 2,496.0 2,499.5 2,565.6 1,708.4
Capitalization
Short-Term Debt 115.6 192.4 120.0 772.6 712.4 602.3
Total Invested $ 2,423.9 $ 2,529.8 $ 2,616.0 $ 3,272.1 $ 3,278.0 $ 2,310.7
Capital
Long-Term Debt as a
Percent of Total
Capitalization 69.5% 69.7% 71.4% 62.1% 56.5% 68.0%
Equity as a
Percent of Total
Capitalization 30.5% 30.3% 28.6% 37.9% 43.5% 32.0%
Total Debt as a
Percent of Total
Invested Capital 70.9% 72.0% 72.7% 71.0% 66.0% 76.4%
CASH FLOW ANALYSIS
The Company's cash flows, like its results of operations,
are seasonal and, therefore, the cash flows experienced during an
interim period are not necessarily indicative of the results to
be expected for an entire year.
Net Cash Flows from Operating Activities
"Net cash provided by operating activities" as shown in the
accompanying Statement of Consolidated Cash Flows ("Cash Flow
Statement") increased from $121.6 million in the first nine
months 1993 to $224.1 million in the first nine months of 1994.
This increase of $102.5 million was principally attributable to:
* Increased cash provided by accounts
receivable collections during 1994,
reflecting the relatively higher December 31,
1993 accounts receivable balance in
comparison to the December 31, 1992 balance.
* Increased 1994 cash provided from the sale of
inventories, principally gas in underground
storage.
* The 1994 cash inflows from settlement of gas
contract disputes, which settlements had
resulted in a net outflow in 1993.<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 31
Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
* Increased 1994 earnings before non-cash
charges and credits.
These favorable impacts were partially offset by:
* Increased 1994 cash used for gas accounts
payable, reflecting the decreased level of
gas purchased but not yet paid for as of
September 30, 1994.
* Increased 1994 cash used for miscellaneous
working capital items.
* Decreased 1994 cash collections of deferred
gas costs reflecting, in part, the transition
by NGT and MRT to the provision of services
pursuant to FERC's Order 636.
The accompanying Cash Flow Statement has been prepared in
accordance with authoritative accounting guidelines which require
the segregation of cash flows into specific categories.
Management believes that other groupings of cash flows may also
be useful and that the following information (which amounts are
consistent with the Cash Flow Statement) will assist in
understanding the Company's sources and uses of cash during the
periods presented. This information should not be viewed as a
substitute for the Cash Flow Statement nor should the totals or
subtotals presented be considered surrogates for totals or
subtotals appearing on the Cash Flow Statement.
Nine Months
Ended September 30
1994 1993
(millions of dollars)
Use (Source)
Settlement of gas contract $ (15.8) $ 17.3
disputes
Capital expenditures 121.1 104.4
Common and preferred dividends 31.6 31.5
Debt retirement 107.6 171.8
Change in receivables sold 79.8 68.3
Decrease in overdrafts 12.9 51.9
Exchange of distribution - 38.0
properties
Selected External Uses of 337.2 483.2
Cash
Less:
Proceeds from sale of 35.3 266.0
properties/assets
Issuance of debt 5.0 35.0
Change in cash balance 3.2 8.7
Cash Generated from Other Sources,
Principally Internal $ 293.7 $ 173.5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 32
Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
Net Cash Flows from Investing Activities
The Company's capital expenditures for continuing operations
by business unit for the nine months ended September 30, 1994 and
1993 were as follows:
Nine Months Ended
September 30
1994 1993 Increase(Decrease)
(millions of dollars) $ %
Pipeline $ 33.2 $ 22.8 $ 10.4 45.6
(excluding LIG)
Distribution 86.9 79.3 7.6 9.6
Other 1.0 0.4 0.6 150.0
Sub Total 121.1 102.5 18.6 18.1
LIG - 1.9 (1.9) N/A
Consolidated $ 121.1 $ 104.4 $ 16.7 16.0
Capital expenditures increased from $104.4 million in the
first nine months of 1993 to $121.1 million in the first nine
months of 1994, an increase of $16.7 million, reflecting
increased spending in both Pipeline and Distribution. The
increased spending in Pipeline was largely due to expenditures
associated with the Company's program to increase throughput at
its facilities near Perryville, Louisiana, while the increased
Distribution expenditures reflect customer growth and replacement
of existing facilities. The Company's capital expenditures for
1994 were budgeted at approximately $200 million.
Net Cash Flows from Financing Activities
Prior to early November 1994, the Company had a revolving
credit facility (the "Previous Facility") which made a total
commitment of $400 million available to the Company through June
30, 1995. Effective November 2, 1994, the Company executed a new
Credit Agreement (the "New Facility") with Citibank, N.A., as
Agent, and a group of sixteen other commercial banks which will
provide a $400 million commitment to the Company through October
31, 1997. The terms and conditions of the New Facility are
similar to the Previous Facility with one major exception.
Although the New Facility continues to be collateralized by the
stock of MRT and NGT, if the Company is rated investment-grade by
both Moody's and Standard & Poor's, this collateral would be
released. In addition, certain restrictions imposed by the New
Facility differ as described following.
As with the Previous Facility, borrowings under the New
Facility will bear interest at various Eurodollar and domestic
rates at the option of the Company and these rates will be
subject to adjustment based on the rating of the Company's senior
debt securities. The Company will pay a facility fee on the
total commitment to each bank each year, currently .30%, and
subject to decrease based on the Company's debt rating, and will
pay an incremental rate of 1/8% on outstanding borrowings in<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 33
Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
excess of $200 million. Both of these fees reflect declines from
the fees under the Previous Facility.
The Company had borrowings under its Previous Facility of
$100 million and $160 million at September 30, 1994 and October
31, 1994, respectively. At November 10, 1994, the Company had
$160 million in borrowings under the New Facility and $10 million
in borrowings under informal lines of credit. The Company had,
therefore, approximately $240 million in capacity under the New
Facility at November 10, 1994, which capacity is expected to be
adequate to cover the Company's current and projected needs for
short-term financing.
The New Facility contains a provision which requires the
Company to maintain a specific level of total stockholders'
equity, initially set at $650 million at December 31, 1993, and
increased annually thereafter by (1) 50% of positive consolidated
net income and (2) 50% of the proceeds (in excess of the first
$50 million) from any incremental equity offering made after June
30, 1994. The New Facility also places a limitation of $2,055
million on total debt. Certain of the Company's other financial
arrangements contain similar provisions. Based on these
restrictions, had the New Facility been in place at September 30,
1994, the Company would have had incremental debt capacity and
incremental dividend capacity of $289.2 million and $54.2
million, respectively.
Largely as a result of the application of the proceeds
received from the Company's recent divestitures, the Company has
significantly reduced its level of total debt and specifically
has reduced its short-term borrowings (its only significant
floating-rate debt) to very low levels. In order to manage its
debt portfolio such that a reasonable portion is subject to
changes in market interest rates and take advantage of available
spreads between 2-3 year fixed-rate and 6-12 month floating-rate
debt instruments, the Company has entered into a number of
transactions generally described as "interest rate swaps". The
terms of these arrangements vary but, in general, specify that
the Company will pay an amount of interest on the notional amount
of the swap which varies with LIBOR while the other party (a
commercial bank) pays a fixed rate. The Company had no swaps in
effect at December 31, 1992 and, during the first nine months of
1993, the Company entered into and subsequently closed out
several swap arrangements. There has been no change in the
makeup or notional amount of the Company's portfolio of swaps
since December 31, 1993 and, as of September 30, 1994, $275
million notional amount of these swaps were outstanding,
terminating at various dates through February 1997. None of
these swaps are "leveraged" and, therefore, they do not represent
exposure in excess of that suggested by the notional amount and
reported interest rates. At September 30, 1994, the Company's
obligation under these arrangements, which is calculated using 6-
12 month floating LIBOR, was based on a weighted average interest
rate of approximately 6.8%, while the counterparties' obligations
were based on a weighted average fixed rate of approximately
5.1%. The Company's performance under these swaps is secured by
the stock of MRT and NGT, and the Company is permitted to
increase the amount outstanding under such secured arrangements<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 34
Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
to a total of $350 million, a limitation imposed by the terms of
the New Facility.
In accordance with authoritative accounting guidelines, the
economic value which transfers between the parties to these swaps
is treated as an adjustment to the effective interest rate on the
Company's underlying debt securities. The effect of these swaps
was to increase the Company's interest expense by $1.3 million
for the three months ended September 30, 1994 and to decrease the
Company's interest expense by $0.1 million for the nine months
ended September 30, 1994 and by $1.6 million and $3.4 million for
the three months and nine months ended September 30, 1993,
respectively. When positions are closed prior to the expiration
of the stated term, any gain or loss on termination is amortized
over the remaining period in the original term of the swap. The
deferred gain associated with interest rate swaps terminated
prior to their expiration was approximately $3.1 million at
September 30, 1994. This gain is expected to be amortized as
follows: the remainder of 1994 - $0.6 million; 1995 - $1.7
million; 1996 - $0.7 million; all remaining periods - $0.1
million. At September 30, 1994, the unrealized loss (mark-to-
market value) associated with outstanding swap arrangements was
approximately $15.4 million.
Commitments
The Company had capital commitments of less than $35 million
at September 30, 1994, which are expected to be funded through
cash provided by operations and/or incremental borrowings. As
described in the Company's 1993 Annual Report on Form 10-K, the
Company has commitments under certain of its leasing
arrangements.
CONTINGENCIES
Pending Sale Transaction. As discussed in the Company's
1993 Report on Form 10-K, the Company has refunded $34 million to
a third-party in conjunction with a proposed transaction related
to capacity in Line AC and may be required to refund additional
amounts, see Note L of the accompanying Notes to Consolidated
Financial Statements.
Letters of Credit. At September 30, 1994, the Company was
obligated for $24.4 million under letters of credit which are
incidental to its ordinary business operations.
Indemnity Provisions. As discussed in the Company's 1993
Report on Form 10-K, the Company has obligations under the
indemnification provisions of certain sale agreements.
Sale of Receivables. As discussed in the Company's 1993
Report on Form 10-K, certain of the Company's receivables are
collateral for receivables which have been sold.
Credit Risk and Off-Balance-Sheet Risk. As discussed in the
Company's 1993 Report on Form 10-K, the Company has off-balance-
sheet risk as a result of its interest rate swaps, see "Net Cash
Flows from Financing Activities" elsewhere herein. As discussed
in the Company's 1993 Report on Form 10-K, the Company has off-<PAGE>
Item 2. Management's Discussion and Analysis of Financial Page 35
Condition and Results of Operations (continued)
Liquidity and Capital Resources (continued)
balance-sheet risk as a result of its natural gas hedging
activities, see "Natural Gas Pipeline" under "Material Changes in
the Results of Operations" for the nine months ended September
30, 1994 and 1993 elsewhere herein. As discussed in the
Company's 1993 Report on Form 10-K, the Company's receivable
sales program also carries off-balance-sheet risk.
Gas Purchase Claims. As discussed in the Company's 1993
Report on Form 10-K, the Company continues to be a party to
claims involving its gas purchase contracts, for which the
Company has provided an accrual it believes to be adequate
although, given the nature of these claims and potential claims,
the Company can provide no assurance that additional charges will
not ultimately result.
Environmental. As more fully described in the Company's
1993 Report on Form 10-K, the Company is currently working with
the Minnesota Pollution Control Agency regarding the remediation
of several sites on which gas was manufactured from the late
1800's to approximately 1960. The Company has made an accrual
for its estimate of the costs of remediation (undiscounted and
without regard to potential third-party recoveries) and, based
upon discussions to date and prior decisions by regulators in the
relevant jurisdictions, the Company continues to believe that it
will be allowed substantial recovery of these costs through its
regulated rates.
In addition, the Company, as well as other similarly
situated firms in the industry, is investigating the possibility
that it may elect or be required to perform remediation of
various sites where meters containing mercury were disposed of
improperly, or where mercury from such meters may have leaked or
been improperly disposed of. While the Company's evaluation of
this issue is in its preliminary stages, it is likely that
compliance costs will be identified and become subject to
reasonable quantification. To the extent that such potential
costs are quantified, the Company will provide an appropriate
accrual and, to the extent justified based on the circumstances
within each of the Company's regulatory jurisdictions, set up
regulatory assets in anticipation of recovery through the
ratemaking process.
On October 24, 1994, the United States Environmental
Protection Agency advised MRT that it, together with a number of
other parties, had been named a potentially responsible party
under federal law with respect to a landfill site in West
Memphis, Arkansas, see "Legal Proceeding" elsewhere herein.
While the nature of environmental contingencies makes
complete evaluation impractical, the Company is currently aware
of no other environmental matter which could reasonably be
expected to have a material impact on its results of operations
or financial position.
Litigation. The Company is party to litigation which arises
in the normal course of business. See "Legal Proceedings"
elsewhere herein.<PAGE>
Page 36
Part II. Other Information
Item 1. Legal Proceedings
On October 15, 1992, the Resolution Trust Corporation
("RTC") filed suit in United States District Court for the
Southern District of Texas, Houston Division, against the Company
for alleged harm resulting from the 1989 failure of University
Savings Association ("USA"), a thrift institution in Houston,
Texas. The RTC claimed that the Company was liable as a
successor-in-interest to Entex, Inc. which merged with the
Company in 1988, after Entex's sale of USA in 1987. The suit
alleged that certain former officers and directors of USA were
responsible for a breach of contract, breaches of fiduciary
duties, negligence and gross negligence in conducting USA's
business affairs. The RTC also alleged that Entex, which owned
University until 1987, was responsible for some of that alleged
wrongdoing, as well as for having allegedly misrepresented facts
to state and federal regulators in connection with the sale of
USA to certain USA officers and directors in 1987. Compensatory
damages of at least $535 million were originally alleged in the
case. The Company, Entex and the defendant directors filed
answers denying the material allegations of the suit and
interposing certain defenses. On June 3, 1993, the Court
dismissed a number of claims discussed above, though it allowed
the RTC to file an amended complaint with respect to some of the
dismissed claims. On July 9, 1993, the Court entered an order
denying a motion filed by the RTC to reconsider the Court's order
dated June 3, 1993. On August 12, 1993, in response to the Court
order allowing the RTC to replead certain claims, the RTC filed
its second amended complaint in which compensatory damages of at
least $520 million are alleged. The Company, Entex and the
defendant directors filed various motions in response to the
second amended complaint. In a hearing held on May 12, 1994, the
Court heard arguments on these motions. On August 30, 1994, the
Court dismissed all causes of action against the Company in this
lawsuit. The Court permitted the RTC to pursue certain causes of
action against the individual officers and directors, if the RTC
could demonstrate gross negligence, or an entire or total want of
care, or total abdication of directorial duties. The Court did
not grant the RTC the right to replead any of its causes of
action. At that time, the Company did not know if the RTC
planned to appeal the Court's order. The Company and each of the
individual defendants have now entered into a final settlement
agreement with the RTC that brings an end to the lawsuit. The
Company and the other defendants agreed to settle the litigation
for $9.1 million in order to avoid the risks, costs and
distraction of a possible appeal by the RTC. The net effect of
the settlement as adjusted for the insurance recovery, legal
expenses incurred and the legal expense reserve previously
accrued will be reflected in the fourth quarter as a loss from
discontinued operations and will not be material.
On August 6, 1993, the Company, its former exploration and
production subsidiary ("E&P") and Arkoma Production Company
("Arkoma"), a subsidiary of E&P, were named as defendants in a
lawsuit (the "State Claim") filed in the Circuit Court of
Independence County, Arkansas. This complaint alleges that the
Company, E&P and Arkoma, acted to defraud ratepayers in a series
of transactions arising out of a 1982 agreement between the
Company and Arkoma. On behalf of a purported class composed of
the Company's ratepayers, plaintiffs have alleged that the
Company, E&P and Arkoma are responsible for common law fraud and<PAGE>
Item 1. Legal Proceedings (continued) Page 37
violation of an Arkansas law regarding gas companies, and are
seeking a total of $100 million in actual damages and $300
million in punitive damages. On November 1, 1993, the Company
filed a motion to dismiss the claim. In a hearing held on May
19, 1994, the Court heard arguments on this motion. On September
20, 1994, the Court entered an order granting the Company's
motion to dismiss. The plaintiffs have filed notice of their
intention to appeal this decision. The underlying facts forming
the basis of the allegations in the State Claim also formed the
basis of allegations in a lawsuit (the "Federal Claim") filed in
September 1990 in the United States District Court for the
Eastern District of Arkansas, by the same plaintiffs. In August
1992, the Court entered an order granting the Company's motion to
dismiss the Federal Claim, and the order was affirmed by the
United States Court of Appeals, Eighth Circuit in April 1993.
This dismissal did not bar the plaintiffs from filing the State
Claim in a state court based on allegations of violation of state
law. Since the State Claim is based on essentially the same
underlying factual basis as the Federal Claim and in light of the
Court's order granting the Company's motion to dismiss, the
Company continues to believe that the State Claim is without
merit, intends to vigorously contest any appeal of the order
granting dismissal and does not believe that the outcome will
have a material adverse effect on the financial position or
results of operations of the Company.
On October 24, 1994, the United States Environmental
Protection Agency advised Mississippi River Transmission
Corporation ("MRT"), a wholly-owned subsidiary of the Company,
that MRT along with a number of other companies have been named
under federal law as potentially responsible parties for a
landfill site in West Memphis, Arkansas and may be required to
share in the cost of remediation of this site. However,
considering the information currently known about the site and
the involvement of MRT, the Company does not believe that this
matter will have a material adverse effect on the financial
position or results of operations of the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27, Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K dated August 30, 1994
reporting under "Item 5. Other Events" and "Item 7.
Financial Statement, Pro Forma Financial Information
and Exhibits", reporting Federal Judge's dismissal of
all causes of action against NorAm Energy and its Entex
division in the litigation brought by the Resolution
Trust Corporation against NorAm Energy, Entex and
various individual defendants in connection with the
1989 receivership of University Savings Association.<PAGE>
Page 38
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.
NorAm Energy Corp.
(Registrant)
By: Jack W. Ellis II
Jack W. Ellis II
Vice President & Controller
Dated November 14, 1994 <PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,272,968
<OTHER-PROPERTY-AND-INVEST> 809,929
<TOTAL-CURRENT-ASSETS> 318,653
<TOTAL-DEFERRED-CHARGES> 47,332
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,448,882
<COMMON> 76,546
<CAPITAL-SURPLUS-PAID-IN> 868,372
<RETAINED-EARNINGS> (370,698)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 574,220
0
130,000
<LONG-TERM-DEBT-NET> 1,604,104
<SHORT-TERM-NOTES> 100,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 15,600
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,024,958
<TOT-CAPITALIZATION-AND-LIAB> 3,448,882
<GROSS-OPERATING-REVENUE> 2,088,365
<INCOME-TAX-EXPENSE> 20,450
<OTHER-OPERATING-EXPENSES> 0
<TOTAL-OPERATING-EXPENSES> 1,905,389
<OPERATING-INCOME-LOSS> 182,976
<OTHER-INCOME-NET> (8,097)
<INCOME-BEFORE-INTEREST-EXPEN> 174,879
<TOTAL-INTEREST-EXPENSE> 126,974
<NET-INCOME> 26,938
5,850
<EARNINGS-AVAILABLE-FOR-COMM> 21,088
<COMMON-STOCK-DIVIDENDS> 25,706
<TOTAL-INTEREST-ON-BONDS> 52,856
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