<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1993
Commission file number 1-40
PACIFIC ENTERPRISES
------------------------------------------------------
(Exact name of Registrant as specified in its charter)
California 95-0743670
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(State of incorporation) (IRS Employer Identification No.)
633 West Fifth Street, Los Angeles, California 90071-2006
- ---------------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
(213) 895-5000
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock and Associated New York Stock Exchange
Common Stock Purchase Rights Pacific Stock Exchange
Preferred Stock
$7.64 dividend
$4.75 dividend
$4.50 dividend American Stock Exchange
$4.40 dividend Pacific Stock Exchange
$4.36 dividend
Securities registered pursuant to Section 12(g) of the Act: None
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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 and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of Registrant's voting stock (Common Stock and Voting
Preferred Stock) held by non-affiliates at March 16, 1994, was approximately
$1.9 billion. This amount excludes the market value of 780,000 shares of Common
Stock held by Registrant's directors and executive officers.
Registrant's Common Stock outstanding at March 16, 1994, numbered 84,391,373
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information in this Annual Report is incorporated by reference to
information contained or to be contained in other documents filed or to be filed
by Registrant with the Securities and Exchange Commission. The following table
identifies the information so incorporated in each Part of this Annual Report on
Form 10-K and the document in which it is or will be contained.
Information Incorporated
by Reference and Document
Annual Report in Which Information is or
On Form 10-K will be Contained
------------ ---------------------------
Part II - Information contained under
the captions "Financial Review
-- Management's Discussion and
Analysis", "Quarterly Financial
Data", "Range of Market Prices
and Capital Stock" and "Selected
Financial Data and Comparative
Statistics 1983-1993", in
Registrant's 1993
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Annual Report to Shareholders.
Part III - Information contained under the
captions "Election of
Directors", "Share Ownership of
Directors and Executive
Officers" and "Executive
Compensation" in Registrant's
Proxy Statement for its Annual
Meeting of Shareholders
scheduled to be held on
May 5, 1994.
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TABLE OF CONTENTS
Page
PART I
Item 1. Business ............................................. 6
Pacific Enterprises................................... 6
Strategic Plan and Recent
Restructuring............................... 6
Southern California Gas Company....................... 7
Recent Developments......................... 8
Regulatory Activity...................... 8
Restructuring of Gas
Supply Contracts......................... 8
Comprehensive Settlement of
Regulatory Issues........................ 9
Operating Statistics........................ 9
Service Area................................ 11
Utility Services............................ 12
Demand for Gas.............................. 13
Supplies of Gas............................. 14
Rates and Regulation........................ 17
Properties.................................. 18
Environmental Matters....................... 18
Interstate Pipeline Operations........................ 19
Alternate Energy Operations........................... 20
Employees............................................. 21
Management............................................ 22
Item 2. Properties............................................ 23
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Item 3. Legal Proceedings..................................... 23
Item 4. Submission of Matters to a
Vote of Security Holders.............................. 24
PART II
Item 5. Market for Registrant's Common
Equity and Related Stockholder Matters................ 25
Item 6. Selected Financial Data............................... 25
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 25
Item 8. Financial Statements and
Supplementary Data.................................... 25
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.................................. 26
PART III
Item 10. Directors and Executive Officers
of the Registrant..................................... 27
Item 11. Executive Compensation................................ 27
Item 12. Security Ownership of Certain
Beneficial Owners and Management...................... 27
Item 13. Certain Relationships and Related
Transactions.......................................... 27
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K............................... 28
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PART I
ITEM 1. BUSINESS
PACIFIC ENTERPRISES
Pacific Enterprises is a Los Angeles-based utility holding company
primarily engaged in supplying natural gas throughout most of Southern and
portions of Central California. These operations are conducted through Southern
California Gas Company, the nation's largest natural gas distribution utility,
serving 4.7 million meters and 535 communities throughout a 23,000-square mile
service territory with a population of approximately 16 million. Through other
subsidiaries, Pacific Enterprises is also engaged in interstate and offshore
natural gas transmission and in alternate energy development.
STRATEGIC PLAN AND RECENT RESTRUCTURING
Pacific Enterprises returned to profitability in 1993 and resumed
dividends on its Common Stock. This was accomplished through the completion of a
strategic restructuring and the continued strong performance of gas utility
operations conducted through Southern California Gas Company, which has achieved
or exceeded its authorized rate of return on rate base for the last 11
consecutive years.
The restructuring was part of a new strategic plan to refocus on
natural gas utility operations. It was adopted in 1992 in response to
increasingly unsatisfactory financial performance and shareholder returns
attributable to non-utility operations. Non-utility operations had been greatly
expanded in 1986 with the initial acquisition of retailing operations and, to a
lesser extent, again in 1988 with additional acquisitions in retailing and in
oil and gas exploration and production. The profitability of gas utility
operations could not offset declines in non-utility operations and earnings per
share increasingly declined beginning in 1988 and substantial and increasing
losses were incurred beginning in 1990. As a result, non-utility related
indebtedness increased substantially and dividends on Common Stock were reduced
in 1991 and suspended in 1992.
During 1992 and early 1993, retailing and oil and gas exploration and
production operations were sold with the sale proceeds applied to reduce
non-utility related debt and the remaining debt was refinanced. Corporate staff
and other expenses also were reduced. In addition, a quasi-reorganization for
financial reporting purposes was effected on December 31, 1992 restating assets
and liabilities to their fair value and eliminating an accumulated deficit in
retained earnings.
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In mid-1993, Pacific Enterprises completed a public offering of 8
million shares of its Common Stock and applied a portion of the proceeds of the
offering to the repayment of substantially all remaining non-utility debt. Cash
dividends on Common Stock were then resumed at an initial annual rate of $1.20
per share.
The restructuring was completed later in 1993 by establishing common
membership for the Boards of Directors of Pacific Enterprises and Southern
California Gas Company and electing several officers in common between the two
companies. These include Willis B. Wood, Jr., Chairman and Chief Executive
Officer of Pacific Enterprises, who was elected as Presiding Director of
Southern California Gas Company and Richard D. Farman, Chief Executive Officer
of Southern California Gas Company, who was elected as President of Pacific
Enterprises.
------------------------------
Pacific Enterprises was incorporated in California in 1907 as the
successor to a corporation organized in 1886. Its principal executive offices
are located at 633 West Fifth Street, Los Angeles, California 90071-2006 and
its telephone number is (213) 895-5000.
SOUTHERN CALIFORNIA GAS COMPANY
Pacific Enterprises' principal subsidiary is Southern California Gas
Company ("SoCalGas"), a public utility owning and operating a natural gas
transmission, storage and distribution system that supplies natural gas in 535
cities and communities throughout most of Southern California and parts of
Central California. SoCalGas is the nation's largest natural gas distribution
utility, providing gas service to approximately 16 million residential,
commercial, industrial, utility electric generation and wholesale customers
through approximately 4.7 million meters in a 23,000-square mile service area.
SoCalGas is subject to regulation by the California Public Utilities
Commission (CPUC) which, among other things, establishes rates SoCalGas may
charge for gas service, including an authorized rate of return on investment.
SoCalGas' future earnings and cash flow will be determined primarily by the
allowed rate of return on common equity, growth in rate base, noncore pricing
and the variance in gas volumes delivered to these noncore customers versus
CPUC-adopted forecast deliveries, the recovery of gas and contract restructuring
costs if the Comprehensive Settlement (see "Recent Developments - Comprehensive
Settlement of Regulatory Issues") is not approved and the ability of management
to control expenses and investment in line with the amounts authorized by the
CPUC to be collected in rates. Also, SoCalGas' ability to earn revenues in
excess of its authorized return from noncore customers due to volume increases
will be substantially eliminated for the five years of the Comprehensive
Settlement referenced above. This is because forecasted deliveries in excess of
the 1991 throughput levels used to establish rates were contemplated in
estimating the costs of the Comprehensive Settlement, and are reflected in
current year liabilities. In addition, the impact of
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any future regulatory restructuring and increased competitiveness in the
industry, including the continuing threat of customers bypassing SoCalGas'
system and obtaining service directly from interstate pipelines, can affect
SoCalGas' performance.
For 1994, the CPUC has authorized SoCalGas to earn a rate of return on
rate base of 9.22 percent and a 11.00 percent rate of return on common equity
compared to 9.99 percent and 11.90 percent, respectively, in 1993. Growth in
rate base for 1993 was approximately 1.8 percent and rate base is expected to
increase by approximately 4 percent to 5 percent in 1994. SoCalGas has achieved
or exceeded its authorized return on rate base for the last eleven consecutive
years and its authorized rate of return on equity for the last nine consecutive
years.
RECENT DEVELOPMENTS
REGULATORY ACTIVITY
On December 17, 1993, the CPUC issued its decision in SoCalGas' 1994
general rate case which authorized a net $97 million rate reduction. SoCalGas
plans to adjust its operations with the intention of operating within the
amounts authorized in rates. Approximately $21 million of the rate reduction
represents productivity improvements. Other items include non-operational
issues, primarily reductions in marketing programs and income tax effects of
the rate reduction. The decision also includes the effects of the reduction
of SoCalGas' rate of return authorized in its 1994 cost of capital proceeding,
which increased the total reduction in rates to $132 million. New rates
emanating from the CPUC decision became effective January 1, 1994.
RESTRUCTURING OF GAS SUPPLY CONTRACTS
SoCalGas and the Company's gas supply subsidiaries have reached
agreements with suppliers of California offshore and Canadian gas for a
restructuring of long-term gas supply contracts. The cost of these supplies to
SoCalGas has been substantially in excess of its average delivered cost of gas.
During 1993, these excess costs totaled approximately $125 million.
The new agreements substantially reduce the ongoing delivered costs of
these gas supplies and provide lump sum settlement payments of $375 million to
the suppliers. The expiration date for the Canadian gas supply contract has
been shortened from 2012 to 2003, and the supplier of California offshore gas
continues to have an option to purchase related gas treatment and pipeline
facilities owned by the Company's gas supply subsidiary. The agreement with the
suppliers of Canadian gas is subject to certain Canadian regulatory and other
approvals.
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COMPREHENSIVE SETTLEMENT OF REGULATORY ISSUES
SoCalGas and a number of interested parties, including the Division of
Ratepayer Advocates ("DRA") of the CPUC, large noncore customers and ratepayer
groups, have filed for CPUC approval a comprehensive settlement (the
"Comprehensive Settlement") of a number of pending regulatory issues including
partial rate recovery of restructuring costs associated with the gas supply
contracts discussed above. The Comprehensive Settlement, if approved by the
CPUC, would permit SoCalGas to recover in utility rates approximately 80 percent
of its contract restructuring costs of $375 million and accelerated depreciation
of related pipeline assets of its gas supply affiliates of approximately $130
million, together with interest, over a period of approximately five years.
SoCalGas has filed a financing application with the CPUC primarily for the
borrowing of $425 million to provide for funds needed under the Comprehensive
Settlement. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Comprehensive Settlement of Regulatory
Issues" for a discussion of the regulatory issues, in addition to the gas supply
issues, addressed in the Comprehensive Settlement.
OPERATING STATISTICS
The following table sets forth certain operating statistics of
SoCalGas from 1989 through 1993.
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OPERATING STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gas Revenues (thousands of dollars):
Residential $1,652,562 $1,483,654 $1,673,837 $1,547,492 1,484,099
Commercial/Industrial 853,579 836,672 977,065 1,057,030 1,016,267
Utility Electric Generation 147,208 194,639 148,573 235,102 482,747
Wholesale 116,737 128,881 144,779 164,716 191,817
Exchange 3,745 5,863 7,482 8,496 8,371
---------- ---------- ---------- ---------- ----------
Total $2,773,831 $2,649,709 $2,951,736 $3,012,836 $3,183,301
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Volumes (millions of cubic feet):
Residential 247,507 243,920 249,522 261,887 255,414
Commercial/Industrial 339,706 363,124 460,368 436,330 400,554
Utility Electric Generation 212,720 220,642 170,043 158,985 201,845
Wholesale 147,978 149,232 141,931 139,034 145,923
Exchange 16,969 23,888 25,604 30,246 29,725
---------- ---------- ---------- ---------- ----------
Total 964,880 1,000,806 1,047,468 1,026,482 1,033,461
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Sales 352,052 355,177 411,414 515,757 594,327
Transportation 595,859 621,741 610,450 480,479 409,409
Exchange 16,969 23,888 25,604 30,246 29,725
---------- ---------- ---------- ---------- ----------
Total 964,880 1,000,806 1,047,468 1,026,482 1,033,461
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Revenues (per thousand cubic feet):
Residential $6.68 $6.08 $6.71 $5.91 $5.81
Commercial/Industrial $2.51 $2.30 $2.12 $2.42 $2.54
Utility Electric Generation $0.69 $0.88 $0.87 $1.48 $2.39
Wholesale $0.79 $0.86 $1.02 $1.18 $1.31
Exchange $0.22 $0.25 $0.29 $0.28 $0.28
Customers
Active Meters (at end of period):
Residential 4,459,250 4,445,500 4,429,896 4,381,563 4,295,838
Commercial 187,602 189,364 193,051 193,409 192,269
Industrial 23,924 24,419 25,642 26,530 26,957
Utility Electric Generation 8 8 8 8 7
Wholesale 3 2 2 2 2
---------- ---------- ---------- ---------- ----------
Total 4,670,787 4,659,293 4,648,599 4,601,512 4,515,073
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Residential Meter Usage (annual average):
Revenues $371 $334 $380 $356 $349
Volumes (thousands of cubic feet) 55.6 55.0 56.6 60.3 60.1
System Usage (millions of cubic feet):
Average Daily Sendout 2,611 2,717 2,881 2,824 2,852
Peak Day Sendout 4,578 4,547 4,356 5,267 5,295
Sendout Capacity (at end of period) 7,351 7,419 7,073 7,073 7,027
Degree Days(1):
Number 1,255(2) 1,258 1,409 1,432 1,344
Average (20 Year) 1,433 1,458 1,474 1,506 1,509
Percent of Average 87.6% 86.3% 95.6% 95.1% 89.1%
Population of Service Area
(estimated at year end) 15,600,000 15,600,000 15,600,000 15,100,000 14,800,000
<FN>
- ---------------------
(1) The number of degree days for any period of time indicates whether the
temperature is relatively hot or cold. A degree day is recorded for each
degree the average temperature for any day falls below 65 degrees
Fahrenheit.
(2) Estimated calendar degree days.
</TABLE>
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SERVICE AREA
SoCalGas distributes natural gas throughout a 23,000 - square mile
service territory with a population of approximately 16 million people. As
indicated by the following map, its service territory includes most of Southern
California and portions of Central California.
[MAP]
Natural gas service is also provided on a wholesale basis to the distribution
systems of the City of Long Beach, San Diego Gas & Electric Company and
Southwest Gas Company.
<PAGE>
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UTILITY SERVICES
SoCalGas' customers are divided, for regulatory purposes, into core
and noncore customers. Core customers are primarily residential and small
commercial and industrial customers, without alternative fuel capability.
Noncore customers are primarily electric utilities, wholesale and large
commercial and industrial customers, with alternative fuel capability.
SoCalGas offers two basic utility services, sale of gas and
transmission of gas. Residential customers and most other core customers
purchase gas directly from SoCalGas. Noncore customers and large core customers
have the option of purchasing gas either from SoCalGas or from other sources
(such as brokers or producers) for delivery through SoCalGas' transmission and
distribution system. Smaller customers are permitted to aggregate their gas
requirements and also to purchase gas directly from brokers or producers, up to
a limit of 10 percent of SoCalGas' core market. SoCalGas generally earns the
same contribution to earnings whether a particular customer purchases gas from
SoCalGas or utilizes SoCalGas' system for transportation of gas purchased from
others. (See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Ratemaking Procedures.")
SoCalGas continues to be obligated to purchase reliable supplies of
natural gas to serve the requirements of its core customers. However, the only
gas supplies that SoCalGas may offer for sale to noncore customers are the same
supplies that it purchases to serve its core customers. Noncore customers that
elect to purchase gas supplies from SoCalGas must for a two-year period agree to
take-or-pay for 75 percent of the gas that they contract to purchase.
SoCalGas also provides a gas storage service for noncore customers on
a bid basis. The storage service program provides opportunities for customers
to store gas on an "as available" basis during the summer to reduce winter
purchases when gas costs are generally higher, or to reduce their level of
winter curtailment in the event temperatures are unusually cold. During 1993,
SoCalGas stored approximately 24 billion cubic feet of customer-owned gas.
<PAGE>
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DEMAND FOR GAS
Natural gas is a principal energy source in SoCalGas' service area for
residential, commercial and industrial uses as well as utility electric
generation (UEG) requirements. Gas competes with electricity for residential
and commercial cooking, water heating and space heating uses, and with other
fuels for large industrial, commercial and UEG uses. Demand for natural gas in
Southern California is expected to continue to increase but at a slower rate due
primarily to a slowdown in housing starts, new energy efficient building
construction and appliance standards and general recessionary business
conditions.
During 1993, 97 percent of residential energy customers in SoCalGas'
service territory used natural gas for water heating and 94 percent for space
heating. Approximately 78 percent of those customers used natural gas for
cooking and over 72 percent for clothes drying.
Demand for natural gas by large industrial and UEG customers is very
sensitive to the price of alternative competitive fuels. These customers number
only approximately 1,000; however, during 1993, accounted for approximately 19
percent of total revenues, 65 percent of total gas volumes delivered and 15
percent of the authorized gas margin. Changes in the cost of gas or alternative
fuels, primarily fuel oil, can result in significant shifts in this market,
subject to air quality regulations. Demand for gas for UEG use is also affected
by the price and availability of electric power generated in other areas and
purchased by SoCalGas' UEG customers.
Since the completion of the Kern River/Mojave Interstate Pipeline
(Mojave) in February 1992, SoCalGas' throughput to customers in the Kern County
area who use natural gas to produce steam for enhanced oil recovery projects has
decreased significantly because of the bypass of SoCalGas' system. Mojave now
delivers to customers formerly served by SoCalGas 350 to 400 million cubic
feet of gas per day. The decrease in revenues from enhanced oil recovery
customers is subject to full balancing account treatment, except for a five
percent incentive to SoCalGas for attaining certain throughput levels, and
therefore, does not have a material impact on earnings. However, bypass of
other Company markets also may occur as a result of plans by Mojave to extend
its pipeline north to Sacramento through portions of SoCalGas' service
territory. The effect of bypass is to increase SoCalGas' rates to other
customers and thus make its natural gas service less competitive with that of
competing pipelines and available alternate fuels.
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In response to bypass, SoCalGas has received authorization from the
CPUC for expedited review of price discounts proposed for long-term gas
transportation contracts with some noncore customers. In addition, in December
1992, the CPUC approved changes in the methodology for allocating SoCalGas'
costs between core and noncore customers to reduce the subsidization of core
customer rates by noncore customers. Effective in June 1993, these new rate
changes implemented the CPUC's policy known as "long-run marginal cost." The
revised methodologies have resulted in a reduction of noncore rates and a
corresponding increase in core rates that better reflect the cost of serving
each customer class and, together with price discounting authority, has enabled
SoCalGas to better compete with interstate pipelines for noncore customers. In
addition, in August 1993 a capacity brokering program was implemented. Under
the program, for a fee, SoCalGas provides to noncore customers, or others, a
portion of its control of interstate pipeline capacity to allow more direct
access to producers. Also, the Comprehensive Settlement (see "Recent
Developments - Comprehensive Settlement of Regulatory Issues") will help
SoCalGas' competitiveness by reducing the cost of transportation service to
noncore customers.
SUPPLIES OF GAS
In 1993, SoCalGas delivered slightly less than 1 trillion cubic feet
of natural gas through its system. Approximately 64 percent of these deliveries
were customer-owned gas for which SoCalGas provided transportation services,
compared to 65 percent in 1992. The balance of gas deliveries was gas purchased
by SoCalGas and resold to customers.
Most of the natural gas delivered by SoCalGas is produced outside of
California. These supplies are delivered to the California border by interstate
pipeline companies (primarily El Paso Natural Gas Company and Transwestern
Natural Gas Company) that produce or purchase the supplies or provide
transportation services for supplies purchased from other sources by SoCalGas or
its transportation customers. These supplies enter SoCalGas' intrastate
transmission system at the California border for delivery to customers.
SoCalGas currently has paramount rights to daily deliveries of up to
2,200 million cubic feet of natural gas over the interstate pipeline systems of
El Paso Natural Gas Company (up to 1,450 million cubic feet) and Transwestern
Pipeline Company (up to 750 million cubic feet). The rates that interstate
pipeline companies may charge for gas and transportation services and other
terms of service are regulated by the Federal Energy Regulatory Commission
(FERC).
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The following table sets forth the sources of gas deliveries by
SoCalGas from 1989 through 1993.
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SOUTHERN CALIFORNIA GAS COMPANY
SOURCES OF GAS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
Gas Purchases: (Millions of Cubic Feet)
<S> <C> <C> <C> <C> <C>
Market Gas:
30-Day 84,696 20,695 139,649 148,849 202,316
Other 159,197 198,049 168,486 225,710 161,078
---------- ---------- ---------- ---------- ----------
Total Market Gas 243,893 218,744 308,135 374,559 363,394
El Paso Natural Gas Company -- -- -- -- 7,288
Transwestern Pipeline Company -- -- -- -- 87,475
Affiliates 96,559 99,226 98,566 103,406 104,097
California Producers &
Federal Offshore 28,107 42,262 39,613 52,633 54,145
---------- ---------- ---------- ---------- ----------
Total Gas Purchases 368,559 360,232 446,314 530,598 616,399
Customer-Owned Gas and
Exchange Receipts 622,307 641,080 629,038 531,263 436,239
Storage Withdrawal
(Injection) - Net (9,498) 14,379 (8,451) (13,288) 1,010
Company Use and
Unaccounted For (16,488) (14,885) (19,432) (22,091) (20,185)
---------- ---------- ---------- ---------- ----------
Net Gas Deliveries 964,880 1,000,806 1,047,469 1,026,482 1,033,463
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Gas Purchases: (Millions of dollars)
Commodity Costs $ 815,145 $ 805,550 $1,071,445 $1,371,854 $1,514,494
Fixed Charges* 397,714 397,579 358,294 405,233 430,242
---------- ---------- ---------- ---------- ----------
Total Gas Purchases $1,212,859 $1,203,129 $1,429,739 $1,777,087 $1,944,736
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Average cost of gas purchased
(dollars per thousand
cubic feet)** $2.21 $2.24 $2.40 $2.59 $2.46
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<FN>
* Fixed charges primarily include pipeline demand charges, take or pay
settlement costs and other direct billed amounts allocated over the quantities
delivered by the interstate pipelines serving SoCalGas.
** The average commodity cost of gas purchased excludes fixed charges.
</TABLE>
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Market sensitive gas supplies (supplies purchased on the spot market
as well as under longer-term contracts and ranging from one month to ten years
based on spot prices) accounted for approximately 66 percent of total gas
volumes purchased by SoCalGas during 1993, as compared with 61 percent and 69
percent, respectively, during 1992 and 1991. These supplies were generally
purchased at prices significantly below those for other long-term sources of
supply.
See "Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Comprehensive Settlement of Regulatory
Issues" for a discussion of the contemplated gas cost incentive mechanism. On
March 16, 1994, the CPUC issued its decision approving the gas cost incentive
mechanism for implementation for a three year trial period beginning April 1,
1994.
SoCalGas estimates that sufficient natural gas supplies will be
available to meet the requirements of its customers into the next century.
Because of the many variables upon which estimates of future service are
based, however, actual levels of service may vary significantly from estimated
levels.
RATES AND REGULATION
SoCalGas is regulated by the CPUC. The CPUC consists of five
commissioners appointed by the Governor of California for staggered six-year
terms. It is the responsibility of the CPUC to determine that utilities operate
in the best interest of the ratepayer with a reasonable profit. The regulatory
structure is complex and has a very substantial impact on the profitability of
SoCalGas.
The return that SoCalGas is authorized to earn is the product of the
authorized rate of return on rate base and the amount of rate base. Rate base
consists primarily of net investment in utility plant. Thus, SoCalGas' earnings
are affected by changes in the authorized rate of return on rate base and the
growth in rate base and by SoCalGas' ability to control expenses and investment
in rate base within the amounts authorized by the CPUC in setting rates.
SoCalGas' ability to achieve its authorized rate of return is affected by other
regulatory and operating factors. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Ratemaking
Procedures."
SoCalGas' operating and fixed costs, including return on rate base,
are allocated between core and noncore customers under a methodology that is
based upon the costs incurred in serving these customer classes. For 1994,
approximately 87 percent of the CPUC-authorized gas margin has been allocated to
core customers and 13 percent to noncore customers, including wholesale
customers. Under the current regulatory framework,
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costs may be reallocated between the core and the noncore markets once every
other year in a biennial cost allocation proceeding (BCAP).
PROPERTIES
At December 31, 1993, SoCalGas owned approximately 3,280 miles of
transmission and storage pipeline, 42,250 miles of distribution pipeline and
42,406 miles of service piping. It also owned twelve transmission compressor
stations and six underground storage reservoirs (with a combined working storage
capacity of approximately 116 billion cubic feet) and general office buildings,
shops, service facilities, and certain other equipment necessary in the conduct
of its business.
Southern California Gas Tower, a wholly owned subsidiary of SoCalGas,
has a 15% limited partnership interest in a 52-story office building in downtown
Los Angeles. SoCalGas occupies about half of the building. See also "Item 2.
Properties."
ENVIRONMENTAL MATTERS
SoCalGas has identified and reported to California environmental
authorities 42 former gas manufacturing sites for which it (together with other
utilities as to 21 of the sites) may have remedial obligations under
environmental laws. In addition, SoCalGas is one of a large number of major
corporations that have been named by federal authorities as potentially
responsible parties for environmental remediation of two other industrial sites
and a landfill site. These 45 sites are in various stages of investigation or
remediation. It is anticipated that the investigation, and if necessary,
remediation of these sites will be completed over a period of from ten years to
twenty years.
The CPUC approved approximately $9 million in SoCalGas' base rates for
expenditures beginning in 1990 through 1993 associated with investigating these
sites. In addition, the CPUC previously has approved a special ratemaking
procedure with respect to environmental remediation costs under which, upon
approval by the CPUC on a site-by-site basis, these costs are accumulated for
recovery in future rates subject to a reasonableness review. However, in a
decision issued in late 1992 in connection with its initial reasonableness
review of these costs, the CPUC concluded that SoCalGas had failed to
demonstrate by clear and convincing evidence, the reasonableness for rate
recovery of the applied for remediation costs under the existing ratemaking
procedure. The decision concluded that a reasonableness review procedure may not
be appropriate for rate
<PAGE>
-19-
recovery of environmental remediation costs. In addition, the CPUC ordered
SoCalGas, along with other California energy utilities and the DRA, to work
toward the development of an alternate ratemaking procedure including cost
sharing between shareholder and ratepayers.
In November 1993, a collaborative settlement agreement between the
above parties was submitted to the CPUC for approval that recommends a
ratemaking mechanism that would provide recovery of 90 percent of environmental
investigation and remediation costs without reasonableness review. In addition,
the utilities would have the opportunity to retain a percentage of any insurance
recoveries to offset the 10 percent of costs not recovered in rates. On March
10, 1994, an administrative law judge's proposed decision was issued which
adopted the sharing mechanism discussed above. A final CPUC decision is
expected in mid-1994.
Through the end of 1993, preliminary investigations at 33 sites have
been completed by SoCalGas and remediation liabilities are estimated to be $82
million for all 45 sites. The liability estimated for these sites is subject to
future adjustment pending further investigation. (See Note 5 of Notes to
Consolidated Financial Statements filed as Exhibit 1.07 to this Annual Report.)
INTERSTATE PIPELINE OPERATIONS
Pacific Enterprises is engaged, through Pacific Interstate Company, in
interstate and offshore purchase and transmission of natural gas which is resold
to SoCalGas under long-term supply contracts. Two subsidiaries own and operate
pipelines and related facilities for deliveries to SoCalGas of gas produced from
offshore fields near Santa Barbara, California. Another subsidiary has an
interest in pipeline facilities for deliveries to SoCalGas of gas from Western
Canada.
The operations of one of these subsidiaries is regulated by the
Federal Energy Regulatory Commission which has approved tariffs which provide
for the recovery from SoCalGas of virtually all costs related to the purchase
and delivery of natural gas. During 1993, these operations accounted for
approximately 26% of the total volume of gas purchased by SoCalGas and 10% of
SoCalGas' total throughput.
<PAGE>
-20-
ALTERNATE ENERGY OPERATIONS
Through Pacific Energy, Pacific Enterprises builds and operates
electricity generating plants fueled by renewable energy sources, including gas
from sanitary landfills, waste wood, hydropower and geothermal. Electricity
produced by these plants is sold to electric utilities under long-term contracts
generally providing for escalating fixed prices for ten years with pricing
thereafter at the utility's short-run avoided cost. The fixed pricing periods
for Pacific Energy's existing contracts expire between 1995 and 1997 and Pacific
Enterprises anticipates that avoided cost pricing will result in substantially
lower prices for its electrical production than the fixed prices currently being
received.
Pacific Energy also develops and operates centralized heating and air
conditioning plants. These plants supply heated and chilled water for heating
and cooling major office buildings, hotels and apartments.
<PAGE>
-21-
EMPLOYEES
Pacific Enterprises and its subsidiaries employ approximately 9,300
persons. Of these, approximately 9,000 are employed by SoCalGas.
Most field, clerical and technical employees of SoCalGas are
represented by the Utility Workers' Union of America, or the International
Chemical Workers' Union. Collective bargaining agreements covering these
approximately 6,400 employees expired on June 30, 1993, principally as a
consequence of failure to reach agreement with respect to SoCalGas' proposal to
permit the use of outside contractors for certain services now being provided by
union represented employees, if costs were not lowered to an amount that would
be incurred through the use of outside contractors. In August 1993, after
reaching an impasse, SoCalGas unilaterally implemented the majority of its
proposals and after two failed strike votes and further negotiations, the Union
membership voted in February 1994 on a contract with terms consistent with that
implemented by SoCalGas. On February 28, 1994, the Union notified SoCalGas that
the contract had been ratified by the membership and a contract was signed on
March 9, 1994. The collective bargaining agreement with respect to wages and
working conditions will extend through March 31, 1996. The medical plan
agreement will expire on December 31, 1995.
<PAGE>
-22-
MANAGEMENT
The executive officers of Pacific Enterprises are as follows:
Name Age Position
- ---- --- --------
Willis B. Wood, Jr. 59 Chairman of the Board and
Chief Executive Officer and
Presiding Director of Southern
California Gas Company
Richard D. Farman 58 President and Chief Operating
Officer and Chief Executive
Officer of Southern California
Gas Company
Warren I. Mitchell 56 President of Southern
California Gas Company
Lloyd A. Levitin 61 Executive Vice President,
Treasurer and Chief Financial
Officer
Charles F. Weiss 54 Senior Vice President and
Chief Administrative Officer
Leslie E. LoBaugh, Jr. 48 Vice President and General
Counsel
Executive officers are elected annually and serve at the pleasure of
the Board of Directors.
All of Pacific Enterprises' executive officers have been employed by
Pacific Enterprises or its subsidiaries in management positions for more than
five years.
There are no family relationships between any of Pacific Enterprises'
executive officers.
<PAGE>
-23-
ITEM 2. PROPERTIES
Pacific Library Tower, a wholly-owned subsidiary of Pacific
Enterprises, has a 25% ownership interest in a 72-story office building in
downtown Los Angeles that was completed in late 1990. Pacific Enterprises and
its subsidiaries occupy twelve floors of the building.
Information with respect to the properties of other Pacific
Enterprises' subsidiaries is set forth in Item 1 of this Annual Report.
ITEM 3. LEGAL PROCEEDINGS
Except for the matters referred to in the financial statements filed
with or incorporated by reference in Item 8 or referred to elsewhere in this
Annual Report, neither Pacific Enterprises nor any of its subsidiaries is a
party to, nor is their property the subject of, any material pending legal
proceedings other than routine litigation incidental to its businesses.
Pacific Enterprises and certain of its directors and former directors
are defendants in seven shareholder actions. Three of the actions are
substantially identical shareholder derivative actions in which Pacific
Enterprises is named only as a nominal defendant. The derivative actions seek
recovery from the defendant directors on behalf of Pacific Enterprises for
damages asserted to have been suffered by Pacific Enterprises by alleged
breaches of fiduciary duties by the directors in connection with Pacific
Enterprises' diversification program. The remaining four actions are shareholder
class actions filed on behalf of shareholders who purchased shares of Pacific
Enterprises between June 5, 1990 and February 4, 1992 and seek recovery from
Pacific Enterprises and the defendant directors for damages asserted to have
been suffered as a result of allegedly improper disclosures under the federal
securities laws. In January 1994, Pacific Enterprises announced an agreement had
been reached to settle the shareholder lawsuits which were originally filed in
February 1992. The settlement, which is subject to court approval, totals $45
million. The settlement and related legal costs, after giving effect to amounts
paid by other parties, had been fully provided in liabilities established in
prior years. Pacific Enterprises is a defendant in various lawsuits arising in
the normal course of business; however, management believes that the resolution
of these pending claims and legal proceedings will not have a material adverse
effect on Pacific Enterprises' financial statements.
<PAGE>
-24-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1993 to a vote
of Pacific Enterprises' security holders.
<PAGE>
-25-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Pacific Enterprises' Common Stock is traded on the New York and
Pacific Stock Exchanges. Information as to the high and low sales prices for
such stock as reported on the composite tape for stocks listed on the New York
Stock Exchange and dividends paid for each quarterly period during the two years
ended December 31, 1993 is set forth under the captions "Range of Market Prices
of Capital Stock" and "Quarterly Financial Data" in Pacific Enterprises' 1993
Annual Report to Shareholders filed as Exhibit 13.01 to this Annual Report. Such
information is incorporated herein by reference.
At December 31, 1993, there were 45,414 holders of record of Pacific
Enterprises' Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item is set forth under the caption
"Financial Review - Selected Financial Data and Comparative Statistics
1983-1993" in Pacific Enterprises' 1993 Annual Report to Shareholders filed as
Exhibit 13.01 to this Annual Report. Such information is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by this Item is set forth under the caption
"Financial Review - Management's Discussion and Analysis" in Pacific
Enterprises' 1993 Annual Report to Shareholders filed as Exhibit 13.01 to this
Annual Report. Such information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pacific Enterprises' consolidated financial statements and schedules
required by this Item are listed in Item 14(a)1 and 2 in Part IV of this Annual
Report. The consolidated financial statements listed in Item 14(a)1 are
incorporated herein by reference.
<PAGE>
-26-
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
No change in the Company's accountants has taken place.
<PAGE>
-27-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item with respect to the Company's
directors is set forth under the caption "Election of Directors" in the
Company's Proxy Statement for its Annual Meeting of Shareholders scheduled to be
held on May 5, 1994. Such information is incorporated herein by reference.
Information required by this Item with respect to the Company's
executive officers is set forth in Item 1 of this Annual Report.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this Item is set forth under the caption
"Election of Directors", "Executive Compensation" and "Employee Benefit Plans"
in the Company's Proxy Statement for its Annual Meeting of Shareholders
scheduled to be held on May 5, 1994. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is set forth under the caption
"Election of Directors" in the Company's Proxy Statement for its Annual Meeting
of Shareholders scheduled to be held on May 5, 1994. Such information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Not applicable.
<PAGE>
-28-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1.01 Report of Deloitte & Touche,
Independent Auditors (Contained in
Exhibit 13.01).
1.02 Consolidated Balance Sheet at
December 31, 1993 and 1992
(Contained in Exhibit 13.01).
1.03 Statement of Consolidated
Income for the years ended
December 31, 1993, 1992 and 1991
(Contained in Exhibit 13.01).
1.04 Statement of Consolidated Shareholders'
Equity for the years ended
December 31, 1993, 1992 and 1991
(Contained in Exhibit 13.01).
1.05 Statement of Consolidated Cash Flows
for the years ended December 31, 1993,
1992 and 1991 (Contained in Exhibit 13.01).
1.06 Statement of Business Segment Information
for the years ended December 31, 1993,
1992 and 1991 (Contained in Exhibit 13.01).
1.07 Notes to Consolidated Financial
Statements (Contained in Exhibit 13.01).
2. SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES:
2.01 Report of Deloitte & Touche,
Independent Auditors
2.02 Pacific Enterprises and Subsidiary
Companies - Property, Plant and
Equipment for the years ended
December 31, 1993, 1992
and 1991 - Schedule V
<PAGE>
-29-
2.03 Pacific Enterprises and Subsidiary
Companies - Accumulated Depreciation,
and Amortization of Property, Plant
and Equipment for the years ended
December 31, 1993, 1992,
and 1991 - Schedule VI
2.04 Pacific Enterprises and
Subsidiary Companies - Short-Term
Borrowings, December 31, 1993, 1992
and 1991 - Schedule IX
2.05 Pacific Enterprises and
Subsidiary Companies - Supplementary
Income Statement Information
December 31, 1993, 1992 and 1991 -
Schedule X
3. ARTICLES OF INCORPORATION AND BY-LAWS:
3.01 Articles of Incorporation of
Pacific Enterprises
(Note 22; Exhibit 4.1)
3.02 Bylaws of Pacific Enterprises
(Note 21; Exhibit 3.02)
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS:
(Note: As permitted by Item 601(b)(4)(iii) of Regulation S-K, certain
instruments defining the rights of holders of long-term debt for which the
total amount of securities authorized thereunder does not exceed ten
percent of the total assets of Southern California Gas Company and its
subsidiaries on a consolidated basis are not filed as exhibits to this
Annual Report. The Company agrees to furnish a copy of each such
instrument to the Commission upon request.)
4.01 Specimen Common Stock Certificate of
Pacific Enterprises (Note 16; Exhibit 4.01).
4.02 Specimen Preferred Stock Certificates of Pacific
Enterprises (Note 8; Exhibit 4.02)
4.03 Specimen Remarketed Preferred Stock
Certificate (Note 17; Exhibit 4.03)
4.04 First Mortgage Indenture of Southern California
Gas Company to American Trust Company dated
October 1, 1940 (Note 1; Exhibit B-4).
<PAGE>
-30-
4.05 Supplemental Indenture of Southern California Gas
Company to American Trust Company dated as of
July 1, 1947 (Note 2; Exhibit B-5).
4.06 Supplemental Indenture of Southern California
Gas Company to American Trust Company dated as
of August 1, 1955 (Note 3; Exhibit 4.07).
4.07 Supplemental Indenture of Southern California
Gas Company to American Trust Company dated as
of June 1, 1956 (Note 4; Exhibit 2.08).
4.08 Supplemental Indenture of Southern California
Gas Company to Wells Fargo Bank, National
Association dated as of August 1, 1972 (Note 6;
Exhibit 2.19).
4.09 Supplemental Indenture of Southern California
Gas Company to Wells Fargo Bank, National
Association dated as of May 1, 1976 (Note 5;
Exhibit 2.20).
4.10 Supplemental Indenture of Southern California
Gas Company to Wells Fargo Bank, National
Association dated as of September 15, 1981
(Note 9; Exhibit 4.25).
4.11 Supplemental Indenture of Southern California
Gas Company to Manufacturers Hanover Trust
Company of California, successor to Wells
Fargo Bank, National Association, and Crocker
National Bank as Successor Trustee dated as
of May 18, 1984 (Note 11; Exhibit 4.29).
4.12 Supplemental Indenture of Southern California
Gas Company to Bankers Trust Company of
California, N.A., successor to Wells Fargo Bank,
National Association dated as of January 15,
1988 (Note 13; Exhibit 4.11).
4.13 Supplemental Indenture of Southern California Gas
Company to First Trust of California, National Association,
successor to Bankers Trust Company of California, N.A. (Note 18;
Exhibit 4.37)
4.14 Rights Agreement dated as of March 7, 1990
between Pacific Enterprises and Security
Pacific National Bank, as Rights
Agent (Note 19; Exhibit 4).
<PAGE>
-31-
10. MATERIAL CONTRACTS
10.01 Sale and Purchase Agreement, dated
as of May 22, 1992, as amended between
TCH Corporation and Pacific Enterprises
(Note 19; Exhibit 1).
10.02 Sale and Purchase Agreement, dated
as of May 22, 1992, as amended, among
Big 5 Holdings, Inc., Pacific Enterprises
and Thrifty Corporation (Note 19; Exhibit 2).
10.03 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Enterprises
Oil Company (USA) (Note 19; Exhibit 1).
10.04 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Enterprises
Mineral Company (Note 20; Exhibit 2).
10.05 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Enterprises
Oil Company (Western) (Note 20; Exhibit 3).
10.06 Sale and Purchase Agreement, dated
as of October 11, 1992 by and between
Hunt Oil Company and Pacific Gas
Gathering Company (Note 6; Exhibit 4).
10.07 Form of Indemnification Agreement
between Pacific Enterprises and each of
its directors and officers
(Note 21; Exhibit 10.07)
10.08 Credit Agreement dated as of March 4, 1993
among Pacific Enterprises,
Morgan Guaranty Trust Company of
New York and the other banks named
therein. (Note 21; Exhibit 10.08)
EXECUTIVE COMPENSATION PLANS AND ARRANGEMENTS
10.09 Restatement and Amendment of Pacific
Enterprises 1979 Stock Option Plan
(Note 7; Exhibit 1.1).
<PAGE>
-32-
10.10 Pacific Enterprises Supplemental Medical
Reimbursement Plan for Senior Officers
(Note 8; Exhibit 10.24).
10.11 Pacific Enterprises Financial Services
Program for Senior Officers (Note 8;
Exhibit 10.25).
10.12 Pacific Enterprises Supplemental
Retirement and Survivor Plan (Note 11;
Exhibit 10.36).
10.13 Pacific Enterprises Stock Payment
Plan (Note 11; Exhibit 10.37).
10.14 Pacific Enterprises Pension Restoration
Plan (Note 8; Exhibit 10.28).
10.15 Southern California Gas Company Pension
Restoration Plan For Certain Management
Employees (Note 8; Exhibit 10.29).
10.16 Pacific Enterprises Executive Incentive
Plan (Note 13; Exhibit 10.13).
10.17 Pacific Enterprises Deferred Compensation
Plan for Key Management Employees (Note 12;
Exhibit 10.41).
10.18 Pacific Enterprises Employee Stock
Ownership Plan and Trust Agreement
as amended in toto effective October 1, 1992.
(Note 21; Exhibit 10.18).
10.19 Pacific Enterprises Stock Incentive Plan
(Note 15; Exhibit 4.01).
10.20 Pacific Enterprises Retirement Plan for
Directors (Note 21; Exhibit 10.20).
10.21 Pacific Enterprises Director's Deferred
Compensation Plan (Note 21; Exhibit 10.21).
11. STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
11.01 Pacific Enterprises Computation of
Earnings per Share (see Statement of
Consolidated Income contained in Exhibit 13.01).
<PAGE>
-33-
13. ANNUAL REPORT TO SECURITY HOLDERS
13.01 Pacific Enterprises 1993 Annual
Report to Shareholders. (Such
report, except for the portions
thereof which are expressly
incorporated by reference in this
Annual Report, is furnished for the
information of the Securities and
Exchange Commission and is not to
be deemed "filed" as part of this
Annual Report).
22. SUBSIDIARIES OF THE REGISTRANT
22.01 List of subsidiaries of Pacific Enterprises
24. CONSENTS OF EXPERTS AND COUNSEL
24.01 Consent of Deloitte & Touche,
Independent Auditors.
25. POWER OF ATTORNEY
25.01 Power of Attorney of Certain Officers
and Directors of Pacific Enterprises
(contained on signature pages).
(b) REPORTS ON FORM 8-K:
The following reports on Form 8-K were filed during the last
quarter of 1993.
REPORT DATE ITEM REPORTED
Nov. 3, 1993 Item 5
Dec. 9, 1993 Item 5
Dec. 17, 1993 Item 5
_________________________
NOTE: Exhibits referenced to the following notes were filed with the
documents cited below under the exhibit or annex number following
such reference. Such exhibits are incorporated herein by
reference.
<PAGE>
-34-
Note
Reference Document
1 Registration Statement No. 2-4504 filed by Southern
California Gas Company on September 16, 1940.
2 Registration Statement No. 2-7072 filed by Southern
California Gas Company on March 15, 1947.
3 Registration Statement No. 2-11997 filed by Pacific Lighting
Corporation on October 26, 1955.
4 Registration Statement No. 2-12456 filed by Southern
California Gas Company on April 23, 1956.
5 Registration Statement No. 2-56034 filed by Southern
California Gas Company on April 14, 1976.
6 Registration Statement No. 2-59832 filed by Southern
California Gas Company on September 6, 1977.
7 Registration Statement No. 2-66833 filed by Pacific Lighting
Corporation on March 5, 1980.
8 Annual Report on Form 10-K for the year ended December 31,
1980, filed by Pacific Lighting Corporation.
9 Annual Report on Form 10-K for the year ended December 31,
1981, filed by Pacific Lighting Corporation.
10 Annual Report on Form 10-K for the year ended December 31,
1983 filed by Pacific Lighting Corporation.
11 Annual Report on Form 10-K for the year ended December 31,
1984 filed by Pacific Lighting Corporation.
12 Annual Report on Form 10-K for the year ended December 31,
1985 filed by Pacific Lighting Corporation.
13 Annual Report on Form 10-K for the year ended December 31,
1987, filed by Pacific Enterprises.
14 Current Report on Form 8-K dated March 7, 1990 filed by
Pacific Enterprises.
<PAGE>
-35-
15 Registration Statement No. 33-21908 filed by Pacific
Enterprises on May 17, 1988.
16 Annual Report on Form 10-K for the year ended December 31,
1988 filed by Pacific Enterprises.
17 Annual Report on form 10-K for the year ended December 31,
1989 filed by Pacific Enterprises.
18 Registration Statement No. 33-50826 filed by Southern
California Gas Company on August 13, 1992.
19 Current Report on Form 8-K dated September 25, 1992 filed by
Pacific Enterprises.
20 Current Report on Form 8-K dated January 5, 1993 filed by
Pacific Enterprises.
21 Annual Report on Form 10-K for the year ended
December 31, 1992 filed by Pacific Enterprises.
22 Registration Statement No. 33-61278 filed by Pacific
Enterprises on April 20, 1993.
<PAGE>
-36-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
PACIFIC ENTERPRISES
By: /s/ WILLIS B. WOOD, JR.
--------------------------------
Name: Willis B. Wood, Jr.
Title: Chairman of the Board and
Chief Executive Officer
Dated: March 28, 1994
<PAGE>
-37-
Each person whose signature appears below hereby authorizes Willis B.
Wood, Jr. and Lloyd A. Levitin, and each of them, severally, as
attorney-in-fact, to sign on his or her behalf, individually and in each
capacity stated below, and file all amendments to this Annual Report.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ WILLIS B. WOOD, JR. Chairman of the Board, March 28, 1994
- ----------------------------- Chief Executive
(Willis B. Wood, Jr.) Officer and
Director (Principal
Executive Officer)
/s/ LLOYD A. LEVITIN Executive Vice - March 28, 1994
- ----------------------------- President and Chief
(Lloyd A. Levitin) Financial Officer
(Principal
Financial Officer)
/s/ HYLA H. BERTEA Director March 28, 1994
- ----------------------------
(Hyla H. Bertea)
/s/ HERBERT L. CARTER Director March 28, 1994
- ----------------------------
(Herbert L. Carter)
/s/ JAMES F. DICKASON Director March 28, 1994
- ----------------------------
(James F. Dickason)
/s/ RICHARD D. FARMAN Director March 28, 1994
- ----------------------------
(Richard D. Farman)
/s/ WILFORD D. GODBOLD, JR. Director March 28, 1994
- ----------------------------
(Wilford D. Godbold, Jr.)
/s/ IGNACIO E. LOZANO, JR. Director March 28, 1994
- ----------------------------
(Ignacio E. Lozano, Jr.)
<PAGE>
-38-
/s/ HAROLD M. MESSMER, JR. Director March 28, 1994
- ----------------------------
(Harold M. Messmer, Jr.)
/s/ PAUL A. MILLER Director March 28, 1994
- ----------------------------
(Paul A. Miller)
/s/ JOSEPH N. MITCHELL Director March 28, 1994
- ----------------------------
(Joseph N. Mitchell)
/s/ JOSEPH R. RENSCH Director March 28, 1994
- ----------------------------
(Joseph R. Rensch)
/s/ ROCCO C. SICILIANO Director March 28, 1994
- ----------------------------
(Rocco C. Siciliano)
/s/ LEONARD H. STRAUS Director March 28, 1994
- ----------------------------
(Leonard H. Straus)
/s/ DIANA L. WALKER Director March 28, 1994
- ----------------------------
(Diana L. Walker)
<PAGE>
INDEPENDENT AUDITORS' REPORT
Pacific Enterprises:
We have audited the consolidated financial statements of Pacific
Enterprises and subsidiaries listed on the Index at Item 14(a)1
as of December 31, 1993 and 1992, and for each of the three years
in the period ended December 31, 1993, and have issued our
report thereon dated January 31, 1994; such financial statements
and report are included in your 1993 Annual Report to
Shareholders and are incorporated herein by reference. Our
audits also included the consolidated financial statement
schedules of Pacific Enterprises and subsidiaries listed in Item
14(a)2. These financial statement schedules are the
responsibility of the Company's management. Our responsibility
is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedules when considered
in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE
Los Angeles, California
January 31, 1994
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
FINANCIAL
STATEMENT
SCHEDULE 2.02
SCHEDULE V
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(MILLIONS OF DOLLARS)
RETIREMENTS
BALANCE AT AT ACTUAL BALANCE
BEGINNING ADDITIONS OR ESTIMATED OTHER AT END
DESCRIPTION OF PERIOD AT COST COST CHARGES OF PERIOD
- ----------- ---------- --------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Utility Related:
Utility:
Distribution $3,526 $176 $20 $1 $3,681
Transmission 672 66 2 3 733
Storage 477 19 2 494
General (including automotive
and construction equipment) 341 47 5 383
Construction Work in Progress 116 3 119
Other 5 4 (4) 13
---------- --------- ----------- ------- ---------
Total Utility 5,137 315 29 5,423
Interstate Pipeline 240 11 1 250
---------- --------- ----------- ------- ---------
Total Utility Related 5,377 326 30 5,673
Other 89 1 90
---------- --------- ----------- ------- ---------
TOTAL $5,466 $327 $30 $5,763
---------- --------- ----------- ------- ---------
---------- --------- ----------- ------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
FINANCIAL
STATEMENT
SCHEDULE 2.02
SCHEDULE V
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(MILLIONS OF DOLLARS)
RETIREMENTS
BALANCE AT AT ACTUAL BALANCE
BEGINNING ADDITIONS OR ESTIMATED OTHER AT END
DESCRIPTION OF PERIOD AT COST COST CHARGES* OF PERIOD
- ----------- ---------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C>
Utility Related:
Utility:
Distribution $3,340 $204 $18 $3,526
Transmission 659 17 4 672
Storage 458 22 3 477
General (including automotive
and construction equipment) 305 43 7 341
Construction Work in Progress 79 37 116
Other 2 3 5
---------- --------- ------------ -------- --------
Total Utility 4,843 326 32 5,137
Interstate Pipeline 239 1 240
---------- --------- ------------ -------- --------
Total Utility Related 5,082 327 32 5,377
Other 226 2 7 132 89
---------- --------- ------------ -------- --------
TOTAL $5,308 $329 $39 $132 $5,466
---------- --------- ------------ -------- --------
---------- --------- ------------ -------- --------
<FN>
* Fair value adjustments to assets. See Note 3 of Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
FINANCIAL
STATEMENT
SCHEDULE 2.02
SCHEDULE V
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(MILLIONS OF DOLLARS)
RETIREMENTS
BALANCE AT AT ACTUAL BALANCE
BEGINNING ADDITIONS OR ESTIMATED AT END
DESCRIPTION OF PERIOD AT COST COST OF PERIOD
- ----------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C>
Utility Related:
Utility:
Distribution $3,163 $195 $18 $3,340
Transmission 619 44 4 659
Storage 446 14 2 458
General (including automotive
and construction equipment) 255 56 6 305
Construction Work in Progress 79 79
Other 3 1 2
---------- --------- ------------ -------
Total Utility 4,565 309 31 4,843
Interstate Pipeline 229 11 1 239
---------- --------- ------------ -------
Total Utility Related 4,794 320 32 5,082
Other 224 8 6 226
---------- --------- ------------ -------
TOTAL $5,018 $328 $38 $5,308
---------- --------- ------------ -------
---------- --------- ------------ -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENT
SCHEDULE 2.03
SCHEDULE VI
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
(MILLIONS OF DOLLARS)
RETIREMENTS
ADDITIONS ADDITIONS AT ACTUAL
BALANCE AT CHARGED TO CHARGED OR ESTIMATED BALANCE
BEGINNING COSTS AND TO OTHER COST LESS OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS SALVAGE CHARGES ** OF PERIOD
- ----------- ---------- ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Utility Related:
Utility:
Distribution $1,338 $153 $ $26 $1,465
Transmission 353 25 3 375
Storage 228 23 5 246
General (including automotive
and construction equipment 96 27 2 6 119
---------- ---------- --------- ------------ ---------- ---------
Total Utility 2,015 228 2 40 2,205
Interstate Pipeline 116 11 1 120 246
---------- ---------- --------- ------------ ---------- ---------
Total Utility Related 2,131 239 2 41 120 2,451
Other 22 4 1 25
---------- ---------- --------- ------------ ---------- ---------
TOTAL $2,153 $243 $2 * $42 $120 $2,476
---------- ---------- --------- ------------ ---------- ---------
---------- ---------- --------- ------------ ---------- ---------
<FN>
* PROVISIONS CHARGED TO CLEARING ACCOUNTS AND APPORTIONED TO OPERATIONS, CONSTRUCTION AND ACCOUNTS RECEIVABLE.
** ACCELERATED AMORTIZATION OF PIPELINE RELATED ASSETS PROVIDED IN THE COMPREHENSIVE SETTLEMENT. SEE NOTE 4
OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
FINANCIAL
STATEMENT
SCHEDULE 2.03
SCHEDULE VI
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
(MILLIONS OF DOLLARS)
RETIREMENTS
ADDITIONS ADDITIONS AT ACTUAL
BALANCE AT CHARGED TO CHARGED OR ESTIMATED BALANCE
BEGINNING COSTS AND TO OTHER COST LESS AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS SALVAGE OF PERIOD
- ----------- ---------- ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Utility Related:
Utility:
Distribution $1,218 $146 $ $26 $1,338
Transmission 334 24 5 353
Storage 213 23 8 228
General (including automotive
and construction equipment) 76 26 1 7 96
---------- ---------- --------- ----------- ---------
Total Utility 1,841 219 1 46 2,015
Interstate Pipeline 106 10 116
---------- ---------- --------- ----------- ---------
Total Utility Related 1,947 229 1 46 2,131
Other 27 7 12 22
---------- ---------- --------- ----------- ---------
TOTAL $1,974 $236 $1 * $58 $2,153
---------- ---------- --------- ----------- ---------
---------- ---------- --------- ----------- ---------
<FN>
* PROVISIONS CHARGED TO CLEARING ACCOUNTS AND APPORTIONED TO OPERATIONS, CONSTRUCTION AND ACCOUNTS RECEIVABLE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
FINANCIAL
STATEMENT
SCHEDULE 2.03
SCHEDULE VI
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
(MILLIONS OF DOLLARS)
RETIREMENTS
ADDITIONS ADDITIONS AT ACTUAL
BALANCE AT CHARGED TO CHARGED OR ESTIMATED BALANCE
BEGINNING COSTS AND TO OTHER COST LESS AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS SALVAGE OF PERIOD
- ----------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Utility Related:
Utility:
Distribution $1,105 $138 $ $25 $1,218
Transmission 314 24 4 334
Storage 194 22 3 213
General (including automotive
and construction equipment 59 24 1 8 76
---------- ---------- --------- ------------ ---------
Total Utility 1,672 208 1 40 1,841
Interstate Pipeline 97 10 1 106
---------- ---------- --------- ------------ ---------
Total Utility Related 1,769 218 1 41 1,947
Other 24 7 4 27
---------- ---------- --------- ------------ ---------
TOTAL $1,793 $225 $1 * $45 $1,974
---------- ---------- --------- ------------ ---------
---------- ---------- --------- ------------ ---------
<FN>
* PROVISIONS CHARGED TO CLEARING ACCOUNTS AND APPORTIONED TO OPERATIONS, CONSTRUCTION AND ACCOUNTS RECEIVABLE.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SUPPLEMENTAL
FINANCIAL
STATEMENT
SCHEDULE 2.04
SCHEDULE IX
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
SHORT-TERM BORROWINGS
DECEMBER 31, 1993, 1992 AND 1991
(MILLIONS OF DOLLARS)
MAXIMUM
AMOUNT AVERAGE WEIGHTED
WEIGHTED OUSTANDING DAILY AMOUNT AVERAGE
BALANCE AVERAGE AT ANY MONTH OUTSTANDING INTEREST
CATEGORY OF AGGREGATE AT END INTEREST END DURING DURING RATE DURING
SHORT-TERM BORROWINGS OF PERIOD RATE THE PERIOD THE PERIOD THE PERIOD
- --------------------- --------- -------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Commercial Paper:
December 31, 1993 $267 3.25% $267 $76 3.22%
December 31, 1992 $215 3.82% $215 $31 3.84%
December 31, 1991 $123 4.84% $709 $494 6.35%
</TABLE>
<PAGE>
SUPPLEMENTAL
FINANCIAL
STATEMENT
SCHEDULE 2.05
SCHEDULE X
PACIFIC ENTERPRISES AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(MILLIONS OF DOLLARS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
----- ----- ----
<S> <C> <C> <C>
Maintenance and Repairs $100 $105 $114
</TABLE>
<PAGE>
17. PACIFIC ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS
Pacific Enterprises (Company) is a public utility holding company and parent
of Southern California Gas Company (SoCalGas). This section includes
management's analysis of operating results from 1991 through 1993, and is
intended to provide additional information about the Company's financial
performance. This section also focuses on many of the factors that influence
future operating results and discusses future investment and financing plans.
This section should be read in conjunction with the Consolidated Financial
Statements.
In 1993, the Company completed a strategic restructuring to refocus on
its natural gas utility and related businesses. This restructuring included
divestiture of its retailing and oil and gas operations in late 1992 and
early 1993, substantial reduction of its corporate overhead and sale of 8
million shares of common stock, the proceeds of which were used to repay all
of the Company's parent bank debt, excluding debt related to the employee
benefit plans, and for other general corporate purposes. The Company resumed
its dividend at a $1.20 per common share annual rate in the third quarter of
1993 after having suspended the regular quarterly dividend in the second
quarter of 1992.
RESULTS OF CONSOLIDATED OPERATIONS. Net income for 1993 was $181 million, or
$2.06 per share of common stock, compared to a net loss of $550 million, or
$7.57 per share, in 1992 and a net loss of $88 million, or $1.45 per share,
in 1991. The net losses resulted from losses from discontinued operations of
$686 million, or $9.17 per share, in 1992 and $255 million, or $3.54 per
share, in 1991. Income from continuing operations was $181 million, or $2.06
per share, $136 million, or $1.60 per share and $167 million, or $2.09 per
share, in 1993, 1992 and 1991, respectively.
In 1992, the loss from discontinued operations was primarily due to
losses on disposal of retailing operations of $475 million after-tax and of
oil and gas operations of $156 million after-tax and a provision for
downsizing the Company's corporate operations of $37 million after-tax. In
addition, operating losses from these units were $18 million after-tax. In
connection with the divestitures, the Company effected a quasi-reorganization
for financial reporting purposes effective December 31, 1992. Assets and
liabilities of the remaining entities were adjusted to their fair values and
the accumulated deficit in retained earnings was eliminated by a charge to
capital stock. Fair value adjustments charged to shareholders' equity totaled
$190 million. The financial statements of SoCalGas were not affected by the
quasi-reorganization.
In 1991, the loss from discontinued operations included a write-down of
oil and gas properties of $132 million after-tax, a provision for loss on
disposal of a portion of the retailing operations of $110 million after-tax
and a provision for restructuring at the parent company of $8 million
after-tax.
The weighted average number of shares of common stock outstanding
increased 8 percent to 80.5 million in 1993, following a 4 percent increase
in 1992. The increase in 1993 was due primarily to 8 million shares issued in
a second quarter public offering. The increase in 1992 was due to the
Company's employee benefit and shareholder dividend reinvestment and stock
purchase plans.
Common shareholders' equity per share was $12.19, $9.44 and $19.74 at
December 31, 1993, 1992 and 1991, respectively. The decrease in 1992 was due
to losses from discontinued operations and fair value adjustments related to
the quasi-reorganization.
SOCALGAS FINANCIAL AND OPERATING PERFORMANCE. SoCalGas provides natural
gas distribution, transmission and storage in a 23,000-square-mile service
area in southern California and parts of central California.
SoCalGas's markets are separated into core customers and noncore
customers. Core customers include approximately 4.7 million customers (4.5
million residential and 0.2 million smaller commercial and industrial
customers). The noncore market consists of over 1,000 customers which
primarily includes utility electric generation, wholesale, and large
commercial and industrial customers. The noncore customers are sensitive to
the price relationship between natural gas and alternate fuels, and are
capable of readily switching from one fuel to another, subject to air quality
regulations.
Key financial and operating data for SoCalGas are highlighted in the
table below.
<TABLE>
<CAPTION>
(Dollars in Millions) 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (after preferred dividends) $184 $188 $204
Authorized return on rate base 9.99% 10.49% 10.79%
Authorized return on common equity 11.90% 12.65% 13.00%
Weighted average rate base $2,769 $2,720 $2,663
Growth in weighted average rate base over prior period 1.8% 2.1% 4.5%
- -------------------------------------------------------------------------------------------
</TABLE>
SoCalGas has achieved or exceeded the rate of return on rate base
authorized by the California Public Utilities Commission (CPUC) for 11
consecutive years. In 1994, SoCalGas is authorized to earn 9.22 percent on
rate base and 11.00 percent on common equity. This compares to authorized
returns of 9.99 percent on rate base and 11.90 percent on common equity in
1993. Rate base is expected to increase approximately 4 percent to 5 percent
in 1994.
<PAGE>
18. PACIFIC INTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Net income decreased $4 million in 1993 due primarily to a reduction in
SoCalGas's authorized rate of return on common equity and lower earnings from
the noncore market, partially offset by continued reductions in SoCalGas's
cost of service, including operating and financing costs, and growth in rate
base. During 1992, net income decreased $16 million due primarily to the
recognition in 1991 of a $15 million gain on the 1987 sale of SoCalGas's
former headquarters property. In addition, 1992 results reflect a reduction
in SoCalGas's authorized rate of return on common equity and disallowances
related to its new headquarters, partially offset by growth in rate base and
higher earnings from the noncore market.
The table below summarizes the components of gas revenues.
<TABLE>
<CAPTION>
Sales Transportation and Exchange Total
-------------------- --------------------------- -------------------------
Volume Revenue Volume Revenue Throughput Gas Revenue
(bcf) ($ Millions) (bcf) ($ Millions) (bcf) ($ Millions)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1993 352 2,282 613 492 965 2,774
1992 355 2,116 646 534 1,001 2,650
1991 411 2,607 636 345 1,047 2,952
- --------------------------------------------------------------------------------------------
</TABLE>
The table shows the composition of SoCalGas's throughput and gas revenue
for the past three years. Although the revenues associated with
transportation volumes are less than for gas sales, SoCalGas generally earns
the same margin whether it buys the gas and sells it to the customer or
transports gas already owned by the customer. Throughput, the total gas sales
and transportation volumes moved through SoCalGas's system, is affected by
weather and general economic conditions. In addition, throughput has declined
over the last two years as a result of bypass of SoCalGas's system, primarily
by enhanced oil recovery customers. (See Factors Influencing Future
Performance.) The average commodity cost of gas purchased by SoCalGas,
excluding fixed charges, for 1993 was $2.21 per thousand cubic feet, compared
to $2.24 per thousand cubic feet in 1992 and $2.40 per thousand cubic feet in
1991.
RATEMAKING PROCEDURES. SoCalGas is regulated by the CPUC. It is the
responsibility of the CPUC to determine that utilities operate in the best
interest of the ratepayer with a reasonable profit. The current ratemaking
procedures are summarized below. Some of these procedures would be modified
by the Comprehensive Settlement discussed later in this section.
The return that SoCalGas is authorized to earn is the product of the
authorized rate of return on rate base and the amount of rate base. Rate base
consists primarily of net investment in utility plant. Thus, SoCalGas's
earnings are affected by changes in the authorized rate of return on rate
base and the growth in rate base and by SoCalGas's ability to control
expenses and investment in rate base within the amounts authorized by the
CPUC in setting rates. In addition, achievement of the authorized rate of
return is affected by other regulatory and operating factors.
General rate applications are filed every three years. New rates
emanating from SoCalGas's most recent rate case went into effect on January
1, 1994. In a general rate case, the CPUC establishes a margin, which is the
amount of revenue authorized to be collected from customers to recover
authorized operating expenses (other than the cost of gas), depreciation,
interest, taxes and return on rate base.
In a process referred to as the annual attrition allowance, the CPUC
annually adjusts rates for years between general rate cases to cover the
effects of inflation and changes in rate base. Separate proceedings are held
annually to review SoCalGas's cost of capital, including return on common
equity, interest costs and changes in capital structure.
The CPUC separately reviews and issues decisions on the reasonableness
of various aspects of SoCalGas's operations. The CPUC has disallowed costs it
determined to be imprudent, and further disallowances are possible in the
future.
In the biennial cost allocation proceeding (BCAP), the CPUC specifies
for each two-year period the allocation of total margin to be collected from
SoCalGas's core and noncore customer classes and the expected volumes of gas
each customer class will consume annually. SoCalGas maintains regulatory
accounts to accumulate undercollections and overcollections from customers
and makes periodic filings with the CPUC to adjust future gas rates to
account for variances between forecasted and actual gas costs and deliveries.
In August 1993, SoCalGas filed a $134 million rate increase with the CPUC.
Included in this BCAP filing is a rate structure designed to further reduce
subsidies by nonresidential core customers to residential customers by better
aligning residential rates with the cost of providing residential service.
The CPUC, in an interim decision, granted SoCalGas a $121 million revenue
increase effective January 1, 1994. A final CPUC decision is expected in
mid-1994.
For the core market, the regulatory procedures provide for recording
margin ratably each month. The BCAP balancing account procedure, which
substantially eliminates the effect on income of variances in gas costs and
volumes sold, allows SoCalGas to increase rates for increased gas acquisition
costs or for revenue
<PAGE>
19. PACIFIC ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
shortfalls due to reductions in demand by core customers. Conversely,
SoCalGas reduces rates for decreased gas acquisition costs or for higher than
projected revenues from increases in demand by core customers.
For the noncore market, the CPUC has created a risk-and-reward
mechanism. Earnings may be enhanced by delivering higher than forecast gas
volumes to noncore customers. Conversely, SoCalGas is at risk for unfavorable
variances in noncore volumes or pricing. This upside and downside earnings
potential in the noncore market was limited by the CPUC's procurement
rulemaking decision in August 1991. This decision significantly reduced
SoCalGas's gas procurement activities on behalf of noncore customers and
adopted new service level options and rate structures. It also included a
provision for balancing account treatment for 75 percent of any
undercollection or overcollection in the recovery of noncore margin and other
costs, as compared to what was designated by the CPUC, to be recovered or
returned in rates at a later date. The CPUC's revised noncore rate design
generally provides for single, rolled-in, volumetric rates, which include
use-or-pay provisions in lieu of rates with demand charges.
The collection of up-front demand charges had provided compensation to
SoCalGas for standing ready to provide a contracted level of service and
buffered the potential earnings loss from lower than forecast volumes in the
noncore market. Under certain conditions, noncore rates, including demand
charges, and terms of service are negotiable.
REGULATORY ACTIVITY. On December 17, 1993, the CPUC issued its decision in
SoCalGas's 1994 general rate case which authorized a net $97 million rate
reduction. SoCalGas plans to attempt to adjust its operations with the
intention of operating within the amounts authorized in rates. Approximately
$21 million of the rate reduction represents productivity improvements. Other
items include non-operational issues, primarily reductions in marketing
programs and income tax effects of the rate reduction. The decision also
includes the effects of the reduction of SoCalGas's rate of return authorized
in its 1994 cost of capital proceeding, which increased the total reduction
in rates to $132 million. New rates emanating from the decision became
effective on January 1, 1994.
RESTRUCTURING OF GAS SUPPLY CONTRACTS. SoCalGas and the Company's gas supply
subsidiaries have reached agreements with suppliers of California offshore
and Canadian gas for a restructuring of long-term gas supply contracts. The
cost of these supplies to SoCalGas has been substantially in excess of
SoCalGas's average delivered cost of gas. During 1993, these excess costs
totaled approximately $125 million.
The new agreements substantially reduce the ongoing delivered costs of
these gas supplies and provide lump sum settlement payments of $375 million
to the suppliers. The expiration date for the Canadian gas supply contract
has been shortened from 2012 to 2003, and the supplier of California offshore
gas continues to have an option to purchase related gas treatment and
pipeline facilities owned by the Company's gas supply subsidiary. The
agreement with the suppliers of Canadian gas is subject to certain Canadian
regulatory and other approvals.
COMPREHENSIVE SETTLEMENT OF REGULATORY ISSUES. SoCalGas and a number of
interested parties (including the Division of Ratepayer Advocates of the
CPUC, large noncore customers and ratepayer groups) have proposed for CPUC
approval a comprehensive settlement (Comprehensive Settlement) of a number of
pending regulatory issues including partial rate recovery of restructuring
costs associated with the gas supply contracts discussed above. The
Comprehensive Settlement, if approved by the CPUC, would permit SoCalGas to
recover in utility rates approximately 80 percent of its contract
restructuring costs of $375 million and accelerated depreciation of related
pipeline assets of approximately $130 million, together with interest, over a
period of approximately five years. SoCalGas has filed a financing
application with the CPUC primarily for the borrowing of $425 million to
provide for funds needed under the Comprehensive Settlement. In addition to
the gas supply issues, the Comprehensive Settlement addresses the following
other regulatory issues:
- - NONCORE CUSTOMER RATES. The Comprehensive Settlement also contemplates
changes in the CPUC ratemaking procedures for determining rates to be
charged by SoCalGas to its customers for the five-year period commencing
with the approval of the Comprehensive Settlement by the CPUC. Rates
charged to the customers would be established based upon SoCalGas's
recorded throughput to these customers for 1991. The existing limited
regulatory balancing account treatment for variances in noncore volumes
from those estimated in establishing rates would be eliminated subject
to a crediting mechanism for noncore revenues in excess of certain
limits. Consequently, SoCalGas would bear the full risk of any declines
in noncore deliveries from 1991 levels. Any revenue enhancement from
deliveries in excess of 1991 levels will be limited by a crediting
account mechanism that will require a credit to customers of 87.5
percent of revenues in excess of certain limits. These annual limits
above which the credit is applicable increase from $11 million to $19
million over the five-year period to which the Comprehensive Settlement
is applicable.
<PAGE>
20. PACIFIC ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- - REASONABLENESS REVIEWS. The Comprehensive Settlement contemplates the
settlement of all pending CPUC reasonableness reviews with respect to
SoCalGas's gas purchases from 1989 through 1992 as well as
certain other future reasonableness review issues. The Comprehensive
Settlement also allows recovery of future excess interstate pipeline
capacity costs in SoCalGas rates.
- - GAS COST INCENTIVE MECHANISM. The Comprehensive Settlement contemplates
that a gas cost incentive mechanism (GCIM) would be implemented with an
initial term of three years. Gas costs in excess of a tolerance band
over average market price would be shared equally between ratepayers and
SoCalGas. Savings from gas purchased below the average market price
would be also shared equally between the ratepayers and SoCalGas. The
GCIM would provide a 4 1/2 percent tolerance band in 1994 and a 4 percent
tolerance band in 1995 and 1996. The GCIM is intended to replace the
current gas procurement reasonableness review process.
- - ATTRITION ALLOWANCES. The Comprehensive Settlement contemplates that
SoCalGas may receive annual allowances for operational attrition for
1995 and 1996 only to the extent that the annual inflation rate for
those years exceeds 2 percent and 3 percent, respectively. This is a
departure from past regulatory practice of allowing recovery of the full
effect of inflation in rates. SoCalGas intends to continue to attempt to
control operating expenses and investment in those years to amounts
authorized in rates to offset the effect of this regulatory change.
The Company believes the Comprehensive Settlement will be approved by
the CPUC; therefore, it has been reflected in the Company's financial
statements. Approximately $465 million is included in Regulatory Accounts
Receivable and Regulatory Assets for the recovery of costs as provided in the
Comprehensive Settlement. Upon giving effect to liabilities previously
recognized at the Company and SoCalGas, the costs of the Comprehensive
Settlement, including the restructuring of gas supply contracts, did not
result in any additional charge to the Company's consolidated earnings. In
the event the Comprehensive Settlement is not approved by the CPUC, SoCalGas
will seek other regulatory approvals for the recovery of these costs.
FERC REGULATED SUBSIDIARIES. The Company's interstate pipeline subsidiaries
purchase natural gas from producers in Canada and from federal waters
offshore California and transport it for resale to SoCalGas. During 1993,
these deliveries from the interstate pipeline subsidiaries accounted for
approximately 26 percent of the total volume of gas purchased by SoCalGas and
approximately 10 percent of SoCalGas's total throughput. The gas is purchased
under long-term contracts with producers which have recently been
restructured in conjunction with the Comprehensive Settlement described
above. The activities of these companies have been regulated by the Federal
Energy Regulatory Commission (FERC), which has approved tariffs that provide
for the recovery of virtually all costs related to the purchase and delivery
of natural gas purchased under these contracts. In August 1993, the FERC
issued an order which disclaimed regulation of one of the subsidiaries.
Management does not anticipate this change will have any financial impact on
the Company's operations.
FACTORS INFLUENCING FUTURE PERFORMANCE. Based on existing ratemaking
policies, future SoCalGas earnings and cash flow will be determined primarily
by the allowed rate of return on common equity, the growth in rate base,
noncore pricing and the variance in gas volumes delivered to these customers
versus CPUC-adopted forecast deliveries, the recovery of gas and contract
restructuring costs if the Comprehensive Settlement is not approved and the
ability of management to control expenses and investment in line with the
amounts authorized by the CPUC to be collected in rates. Also, the Company's
ability to earn revenues in excess of SoCalGas's authorized return from
noncore customers due to volume increases will be eliminated for the five
years of the Comprehensive Settlement described above. This is because
forecasted deliveries in excess of the 1991 throughput levels used to
establish rates were contemplated in estimating the costs of the
Comprehensive Settlement, and are reflected in current year liabilities. The
impact of any future regulatory restructuring and increased competitiveness
in the industry, including the continuing threat of customers bypassing
SoCalGas's system and obtaining service directly from interstate pipelines,
can also affect SoCalGas's performance.
SoCalGas's earnings for 1994 will be affected by the reduction in the
authorized rate of return on common equity, reflecting the overall decline in
cost of capital offset by higher rate base than in 1993. For 1994, SoCalGas
is authorized to earn a rate of return on rate base of 9.22 percent and an
11.00 percent rate of return on common equity compared to 9.99 percent and
11.90 percent, respectively, in 1993. Rate base is expected to increase by
approximately 4 percent to 5 percent in 1994. At 1994 authorized levels, a 1
percent change in weighted average rate base changes earnings by
approximately $.02 per share. A change in the authorized return on common
equity of 1 percent changes earnings approximately $.17 per share.
Since the completion of the Kern River/Mojave Interstate Pipeline
(Mojave) in February 1992, SoCalGas's throughput to customers in the Kern
County area who use natural gas to produce steam for enhanced oil recovery
projects has decreased significantly because of the bypass of SoCalGas's
system. Mojave now
<PAGE>
21. PACIFIC ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
delivers to customers formerly served by SoCalGas 350 million to 400 million
cubic feet per day. The decrease in revenues from enhanced oil recovery
customers is subject to full balancing account treatment, except for a 5
percent incentive to SoCalGas for attaining certain throughput levels, and
therefore, does not have a material impact on SoCalGas's earnings. However,
bypass of other markets may also occur as a result of plans by Mojave to
extend its pipeline north to Sacramento through portions of SoCalGas's
service territory. The effect of bypass is to increase SoCalGas's rates to
other customers and thus make its natural gas service less competitive with
that of competing pipelines and available alternate fuels.
In response to bypass, SoCalGas has received authorization from the CPUC
for expedited review of price discounts proposed for long-term gas
transportation contracts with some noncore customers. In addition, in
December 1992, the CPUC approved changes in the methodology for allocating
SoCalGas's costs between core and noncore customers to reduce subsidization
of core customer rates by noncore customers. Effective in June 1993, these
new rate changes implemented the CPUC's policy known as "long-run marginal
cost." The revised methodologies have resulted in a reduction of noncore
rates and a corresponding increase in core rates that better reflects the
cost of serving each customer class and, together with price discounting
authority, has enabled SoCalGas to better compete with interstate pipelines
for noncore customers. In addition, in August 1993 a capacity brokering
program was implemented. Under the program, for a fee, SoCalGas provides to
noncore customers, or others, a portion of its control of interstate pipeline
capacity to allow more direct access to producers. Also, the Comprehensive
Settlement will help SoCalGas's competitiveness by reducing the cost of
transportation service to noncore customers.
Over the past 11 years, management has been able to control operating
expenses and investment within the amounts authorized to be collected in
rates and intends to continue to do so. However, it may not be able to
accomplish this goal. It also bears the risk of nonrecovery of margin or
other costs authorized by the CPUC for the noncore market subject to the
Comprehensive Settlement as discussed above. Unanticipated sharp increases in
the inflation rate could also reduce earnings and cash flow. This possibility
is increased with the limits on attrition allowance in 1995 and 1996 under
the proposed Comprehensive Settlement.
SoCalGas's earnings are subject to variability depending on gas
throughput for its noncore customers. There is a continuing risk that an
unfavorable variance in noncore volumes can result from external factors such
as weather, the use of increased hydroelectric power, the price relationship
between alternative fuels and natural gas and the operational capacity and/or
competing pipeline bypass of SoCalGas's system. In these cases SoCalGas is at
risk for the lost revenue. In addition, although an economic downturn or
recession does not affect SoCalGas as significantly as nonregulated
businesses, there is a risk that an unfavorable variance in the noncore
volumes can result.
SoCalGas's operations are affected by a growing number of environmental
laws and regulations. These laws and regulations affect current operations as
well as future expansion and also require clean up of facilities no longer in
use. Because of expected regulatory treatment, SoCalGas believes that
compliance with these laws will not have a significant impact on its
financial statements. For further discussion of regulatory and environmental
matters, see Note 5 of Notes to Consolidated Financial Statements.
SoCalGas employs approximately 9,000 persons. Most field, clerical and
technical employees are represented by the Utility Workers' Union of America
or the International Chemical Workers' Union. Collective bargaining
agreements covering these approximately 6,400 employees expired on June 30,
1993, principally as a consequence of failure to reach agreement with respect
to SoCalGas's proposal to permit the use of outside contractors for certain
services now being provided by union represented employees, if costs could
not be lowered to an amount that would be incurred through the use of outside
contractors. In August 1993, after reaching an impasse, SoCalGas unilaterally
implemented the majority of the proposals that were on the table during the
union negotiations. Since there is no contract currently in effect, the no
strike/no lock-out provisions of the collective bargaining agreements are no
longer in effect and no assurance can be given that a new collective
bargaining agreement will be concluded or that picketing, work stoppages or a
strike may not occur. However, SoCalGas anticipates that it would be able to
provide essential levels of utility service during any work stoppages and any
work stoppages would not materially affect its results of operations. A
revised contract along the lines previously implemented was submitted to
union members for a vote in February, 1994, but results were not available
as this report was being printed.
On January 17, 1994, SoCalGas's service area was struck by a major
earthquake. The result was a temporary disruption to approximately 150,000 of
its customers and damage to some facilities. The financial impact of the
damages related to the earthquake not recovered by insurance is expected to
be recovered in rates under an existing balancing account mechanism, and
should have no impact on the Company's financial statements.
OTHER OPERATIONS. Other operations include Pacific Energy, Pacific
Enterprises Leasing Company, the Company's partnership interest in its
headquarters building and other miscellaneous activities. Pacific Energy
develops and operates alternate energy facilities and operates centralized
heating and air conditioning plants. Pacific Enterprises Leasing Company
manages leases of commercial and industrial equipment and
<PAGE>
22. PACIFIC ENTERPRISES
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
manages a portfolio of commercial loans secured by real estate. The Company
is phasing out the activities of Pacific Enterprises Leasing Company.
Net income of other operations was $10 million in 1993 compared to net
losses of $4 million in 1992 and $8 million in 1991. The increase from the
prior year is due primarily to the reduction of amortization expense in 1993
resulting from the quasi-reorganization and a liability provided for
leveraged leases at Pacific Enterprises Leasing Company in 1992. Results in
1991 include a loss of $21 million at a small sporting goods manufacturing
and wholesaling subsidiary which has been liquidated.
PARENT COMPANY. During 1993, 1992 and 1991, net losses were $17 million, $52
million and $51 million, including $17 million, $23 million and $34 million
of interest expense after-tax, respectively. The decrease from 1992 to 1993
is due to reductions in parent company workforce and other cost reduction
measures, tax benefits of $8 million for the federal tax rate change in 1993
and provisions for parent downsizing costs recorded in 1991 and 1992. The
increase from 1991 to 1992 is primarily due to favorable tax events in 1991.
CAPITAL EXPENDITURES. Capital expenditures for continuing operations were
$331 million, $329 million and $335 million in 1993, 1992 and 1991,
respectively. Capital expenditures are estimated to be $350 million in 1994
and will be financed primarily by internally-generated funds and by issuance
of long-term debt. Capital expenditures primarily represent investment into
SoCalGas operations.
LIQUIDITY AND DIVIDENDS. On May 26, 1993, the Company completed an
underwritten public offering and sale of 8 million shares of common stock. As
a result of the sale of discontinued operations, the Company has
significantly reduced cash requirements. The proceeds from the sales,
including tax benefits together with cash provided by continuing operations
and sale of common stock, were used to repay the Company's parent bank debt,
excluding debt related to the employee benefit plans, and for other general
corporate purposes. The consolidated cash balance at December 31, 1993 was
$152 million which includes $133 million of cash at the parent.
Interest expense for continuing operations was $135 million, $157
million and $136 million in 1993, 1992 and 1991, respectively. Interest
expense in 1993 was reduced from its 1992 levels as a result of payment of
nonutility debt and refinancing of SoCalGas debt at lower interest rates.
Interest expense in 1991 was reduced by the reversal of tax related interest
accruals.
In 1993, as a result of the Comprehensive Settlement, Accounts
Payable-Other includes the liability for lump sum settlement payments of $375
million to restructure long-term gas supply contracts; Property, Plant and
Equipment-Net has been reduced for accelerated amortization of related
pipeline assets of $130 million; and Regulatory Assets includes the long-term
portion of the accrual of amounts to be recovered in rates. Regulatory
Accounts Receivable increased in 1993 and 1992 reflecting higher
undercollections under the BCAP balancing account procedures due primarily to
throughput falling below CPUC-adopted forecast levels. The 1993 balance also
includes the current portion of the accrual for the Comprehensive Settlement
and undercollections for the transition costs in connection with the capacity
brokering program.
The Company expects to incur additional borrowings of up to
approximately $425 million to finance the Comprehensive Settlement, at which
time approximately $50 million of debt at the gas supply subsidiaries will be
retired. Borrowings are expected to include primarily commercial paper and
medium-term notes. The Company has no plans to issue additional debt beyond
that required by the Comprehensive Settlement and up to $100 million to
finance ongoing utility operations.
As a result of the losses from discontinued operations, the Company has
a remaining net operating loss carryforward for federal income tax purposes
of approximately $237 million at December 31, 1993. Based on expected taxable
income from continuing operations, the Company expects to realize fully the
$83 million in tax benefits associated with the net operating loss
carryforward. (See Note 3 of Notes to Consolidated Financial Statements.)
In January 1994, the Company announced an agreement had been reached to
settle pending shareholder lawsuits originally filed in February 1992. An
amount sufficient to cover the settlement had been fully reserved in
liabilities established in prior years.
In 1993, the Company paid dividends on common and preferred stock of $65
million. This included common dividends of $.30 per share in the third and
fourth quarters of 1993. This compares to $48 million in 1992 and $203
million in 1991. The increase in 1993 was due to the resumption of common
dividends, effective with the third quarter of 1993. The decrease in 1992 was
due to common dividends being suspended, effective with the second quarter of
1992.
The payment of future dividends will depend upon the existence of funds
legally available for dividends (primarily retained earnings), the prior
payment of dividends on Preferred Stock and Class A Preferred Stock, the
Company's then existing and anticipated financial condition and results of
operations, then existing and anticipated business conditions, capital
requirements, opportunities and prospects, and such other factors as the
Board of Directors may from time to time deem relevant.
<PAGE>
23. PACIFIC ENTERPRISES
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
(Dollars are in millions, except per-share amounts) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES AND OTHER INCOME
Operating revenues $2,899 $2,900 $3,007
Other 24 9 45
------------------------
Total 2,923 2,909 3,052
------------------------
EXPENSES
Cost of gas distributed 1,086 1,081 1,267
Operating expenses 1,029 1,048 1,023
Depreciation and amortization 243 236 225
Franchise payments and other taxes 113 122 116
Preferred dividends of a subsidiary 10 7 7
------------------------
Total 2,481 2,494 2,638
------------------------
Income from Continuing Operations
Before Interest and Taxes 442 415 414
Interest 135 157 136
------------------------
Income from Continuing Operations Before Income Taxes 307 258 278
Income Taxes 126 122 111
------------------------
Income from Continuing Operations 181 136 167
------------------------
Discontinued Operations:
Loss from discontinued operations (18) (137)
Loss on disposal of discontinued operations (668) (118)
------------------------
Total (686) (255)
------------------------
Net Income (Loss) 181 (550) (88)
Dividends on Preferred Stock 15 16 16
------------------------
Net Income (Loss) Applicable to Common Stock $ 166 $ (566) $(104)
------------------------
------------------------
NET INCOME (LOSS) PER SHARE OF COMMON STOCK
Continuing operations $ 2.06 $ 1.60 $ 2.09
Discontinued operations (9.17) (3.54)
------------------------
Total $ 2.06 $(7.57) $(1.45)
------------------------
------------------------
Dividends Declared $ .60 $ .44 $ 2.62
------------------------
------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING (In thousands) 80,472 74,820 71,877
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
24. PACIFIC ENTERPRISES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
------------------
(Dollars in Millions) 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Property, Plant and Equipment $5,763 $5,466
Less accumulated depreciation and amortization 2,476 2,153
------------------
Total property, plant and equipment-net 3,287 3,313
------------------
Current Assets:
Cash and cash equivalents 152 432
Accounts receivable-trade (less allowance for doubtful receivables
of $19 in 1993 and $18 in 1992) 469 477
Accounts and notes receivable-other 50 160
Income taxes receivable 20 66
Deferred income taxes 8
Gas in storage 53 40
Other inventories 33 29
Regulatory accounts receivable 449 281
Prepaid expenses 30 62
------------------
Total current assets 1,264 1,547
------------------
Other Investments 51 48
Other Receivables 31 44
Regulatory Assets 918 423
Other Assets 45 39
------------------
Total assets $5,596 $5,414
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
25 PACIFIC ENTERPRISES
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31
---------------------
(Dollars in Millions) 1993 1992
- -------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITALIZATION
Shareholders' Equity:
Capital stock:
Remarketed Preferred, Series A $ 148 $ 148
Preferred 110 110
Common 1,048 859
------------------
Total capital stock 1,306 1,117
Retained earnings, after elimination of accumulated deficit of
$452 million against common stock at December 31, 1992
as part of the quasi-reorganization 116
Less deferred compensation relating to
Employee Stock Ownership Plan (138) (148)
------------------
Total shareholders' equity 1,284 969
Preferred Stocks of a Subsidiary 195 195
Long-Term Debt 1,262 1,774
Debt of Employee Stock Ownership Plan 132 141
------------------
Total capitalization 2,873 3,079
------------------
LIABILITIES
Current Liabilities:
Short-term debt 267 215
Accounts payable-trade 216 226
Accounts payable-other 724 280
Other taxes payable 52 59
Deferred income taxes 27
Long-term debt due within one year 58 217
Accrued interest 62 58
Other 84 83
------------------
Total current liabilities 1,463 1,165
------------------
Long-Term Liabilities 251 294
Customer Advances for Construction 45 45
Postretirement Benefits Other than Pensions 255 267
Deferred Income Taxes 181 89
Deferred Investment Tax Credits 73 77
Other Deferred Credits 455 398
Commitments and Contingent Liabilities (Note 5)
------------------
Total capitalization and liabilities $5,596 $5,414
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
26. PACIFIC ENTERPRISES
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------
(Dollars in Millions) 1993 1992 1991
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from continuing operations $ 181 $ 136 $ 167
Adjustments to reconcile income from continuing operations
to net cash provided (used) by operating activities:
Depreciation and amortization 243 236 225
Deferred income taxes 95 26 17
Other (12) 7 (29)
Net change in other working capital components (130) (209) (144)
---------------------------
Total from continuing operations 377 196 236
---------------------------
Loss from discontinued operations (686) (255)
Adjustments to reconcile loss from discontinued operations to
net cash provided by operating activities:
Provision for losses 668 250
Changes in operating assets and liabilities of
discontinued operations 106 200 196
---------------------------
Total from discontinued operations 106 182 191
---------------------------
Net cash provided by operating activities 483 378 427
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for property, plant and equipment (331) (329) (335)
(Increase) decrease in other investments (3) (6) 5
---------------------------
Total capital expenditures and other investments (334) (335) (330)
Proceeds from disposition of properties 2 14
(Increase) decrease in other receivables, regulatory assets
and other assets (28) 7 (1)
Net investing activities relating to discontinued operations 102 109 (114)
---------------------------
Net cash used in investing activities (260) (217) (431)
--------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of common stock 189 43 73
Sale of preferred stock of a subsidiary 75 50
Redemption of preferred stock of a subsidiary (75)
Increase in long-term debt 931 805 694
Decrease in long-term debt (1,610) (623) (84)
Increase (decrease) in short-term debt 52 92 (368)
Common and preferred dividends (65) (48) (203)
Net financing activities relating to discontinued operations (96) (241)
---------------------------
Net cash provided by (used in) financing activities (503) 173 (79)
---------------------------
Increase (decrease) in cash and cash equivalents (280) 334 (83)
Cash and cash equivalents, January 1 432 98 181
---------------------------
Cash and cash equivalents, December 31 $ 152 $ 432 $ 98
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
<TABLE>
<CAPTION>
27. PACIFIC ENTERPRISES
STATEMENT OF CONSOLIDATED CASH FLOWS
Year Ended December 31
----------------------
(Dollars in Millions) 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
CHANGES IN OTHER WORKING CAPITAL COMPONENTS
(Excluding cash and cash equivalents, short-term debt
and long-term debt due within one year)
Current Assets:
Receivables $ 5 $ 24 $ (31)
Income taxes receivable (49) (1) (40)
Inventories (17) 15 (29)
Regulatory accounts receivable (113) (107) 21
Other 32 25 6
------------------------
Total (142) (44) (73)
------------------------
Current Liabilities:
Accounts payable 38 (135) 10
Other taxes payable (8) (7) 11
Deferred income taxes (23) (10) 27
Other 5 (13) (119)
----------------------
Total 12 (165) (71)
----------------------
Net change in other working capital components $ (130) $ (209) $(144)
------------------------
------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refunded) during the year for:
Interest (net of amount capitalized) $ 131 $ 207 $ 230
Income taxes $ (25) $ (91) $ 141
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
28. PACIFIC ENTERPRISES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deferred
compensation
Years Ended December 31, Preferred Stock Common Stock relating to
1993, 1992 and 1991 ------------------ ------------------- Employee Stock Total
Number of No par Number of No par Retained Ownership shareholders'
(In millions, except share amounts) shares value shares value earnings Plan (ESOP) equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT DECEMBER 31, 1990 1,101,903 $258 70,698,976 $1,385 $419 $(173) $1,889
Net loss (88) (88)
Change in subsidiary's fiscal year 18 18
Cash dividends declared:
Preferred stock (16) (16)
Common stock (187) (187)
Common stock sold 2,319,465 73 73
Common stock repurchased (1,000)
Decrease in deferred compensation
relating to ESOP 10 10
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1991 1,101,903 258 73,017,441 1,458 146 (163) 1,699
Net loss (550) (550)
Cash dividends declared:
Preferred stock (16) (16)
Common stock (32) (32)
Common stock sold 2,272,387 43 43
Quasi-Reorganization (see Note 2 of Notes to
Consolidated Financial Statements) (642) 452 (190)
Decrease in deferred compensation
relating to ESOP 15 15
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1992 1,101,903 258 75,289,828 859 (148) 969
Net Income 181 181
Cash dividends declared:
Preferred stock (15) (15)
Common stock (50) (50)
Common stock sold 8,904,387 189 189
Decrease in deferred compensation
relating to ESOP 10 10
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1993 1,101,903 $258 84,194,215 $1,048 $116 $(138) $1,284
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE NUMBER OF SHARES OF COMMON STOCK AUTHORIZED AT DECEMBER 31, 1993 AND 1992
IS 600,000,000. THE NUMBER OF SHARES OF PREFERRED STOCK AND CLASS A PREFERRED
STOCK AUTHORIZED AND OUTSTANDING AT DECEMBER 31, 1993 AND 1992 IS SET FORTH
IN NOTE 11 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
29. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of all subsidiaries. Investments in 50-percent-or-less owned
joint ventures and partnerships are accounted for by the equity method.
RESTATEMENTS AND RECLASSIFICATION. Certain changes in account classification
have been made in the prior years' consolidated financial statements to
conform to the 1993 financial statement presentation.
REGULATION. Southern California Gas Company (SoCalGas) follows accounting
policies prescribed or authorized by the California Public Utilities
Commission (CPUC). Interstate natural gas transmission subsidiaries follow
accounting policies prescribed or authorized by the Federal Energy Regulatory
Commission (FERC).
INVENTORIES. Gas in storage inventory is stated at last-in, first-out (LIFO)
cost. As a result of the regulatory accounting procedure, the pricing of gas
in storage does not have any effect on net income. If the first-in, first-out
(FIFO) method of accounting for gas in storage inventory had been used by
SoCalGas, inventory would have been higher than reported at December 31, 1993
and 1992 by $58 million and $66 million, respectively. Other inventories are
generally stated at the lower of cost, determined on an average cost basis,
or market.
PROPERTY, PLANT AND EQUIPMENT. The costs of additions, renewals and
improvements to utility plant are charged to the appropriate plant accounts.
These costs include labor, material, other direct costs, indirect charges,
and an allowance for funds used during construction. The cost of utility
plant retired or otherwise disposed of, plus removal costs and less salvage,
is charged to accumulated depreciation. Depreciation is recorded on the
straight-line remaining-life basis.
OTHER. Cash equivalents include short-term investments purchased with
maturities of less than 90 days. Interest of $7 million in 1993, $6 million
in 1992 and $5 million in 1991 was capitalized. Certain assets and
liabilities of a real estate finance subsidiary which is being phased out are
shown on a net basis. Other major accounting policies are included in the
following notes.
2. DISCONTINUED OPERATIONS AND QUASI-REORGANIZATION
The Company has implemented a strategic plan to refocus on its natural gas
utility and related businesses. The strategy has included the divestiture of
its retailing operations and substantially all of its oil and gas exploration
and production business in late 1992 and early 1993.
Retailing operations were sold in several transactions for net cash
proceeds of approximately $50 million, and related tax benefits of
approximately $225 million. The Company also received warrants, which expire
in three to five years, to purchase 10 percent of the shares of the
purchasers of the sold companies. In connection with the sale, the Company
assumed Thrifty's Employee Stock Ownership Plan (ESOP) and related
indebtedness (see Notes 8 and 12), and is entitled to quarterly payments from
the buyer as shares are released to participant accounts.
In the fourth quarter of 1991, the Company provided a charge of $110
million ($110 million after-tax, or $1.53 per share) for the loss on disposal
of a portion of its retailing operations, and in the first quarter of 1992,
provided an additional charge of $730 million ($475 million after-tax, or
$6.45 per share) for the loss on disposal of the remaining retailing
operations. Revenues from the retailing operations were $2,091 million for
1992 (through September 25, the date of sale) and $3,253 million for 1991.
The loss from the discontinued retailing operations was $28 million for 1992
and $81 million for 1991, net of related income tax benefits of $12 million
and $50 million, respectively.
Oil and gas exploration and production operations were sold in two
separate transactions for net cash proceeds of $410 million in late 1992 and
early 1993. In the second quarter of 1992, the Company provided a charge of
$232 million ($156 million after tax, or $2.09 per share) for the loss on
disposal. Annual revenues from the oil and gas operations were $232 million
for 1992 and $324 million for 1991. The income (loss) from the discontinued
oil and gas operations was $10 million for 1992 and $(56) million for 1991,
net of related income tax benefits (expense) of $(4) million and $10 million,
respectively.
The Company also charged to the loss on disposal of discontinued
operations the costs from downsizing its corporate operations of $37 million
in 1992 and $8 million in 1991, net of related income tax benefits of $24
million and $5 million, respectively.
Interest expense of $47 million and $69 million in 1992 and 1991,
respectively, was allocated to discontinued operations. These allocations
were based on net assets of the discontinued operations, in relation to
consolidated net assets.
The sold retailing and oil and gas segments have been reported as
discontinued operations in the Consolidated Financial Statements.
On February 2, 1993, the Company's Board of Directors adopted a
resolution approving a quasi-reorganization for financial reporting purposes
effective December 31, 1992. The quasi-reorganization resulted in a
<PAGE>
30. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. DISCONTINUED OPERATIONS AND QUASI-REORGANIZATION (CONTINUED)
restatement of the assets and liabilities to their estimated fair value at
December 31, 1992 and the elimination of the Company's retained earnings
deficit by a reduction of $452 million in the common stock account. This
restatement resulted in a net after-tax charge to the common stock account of
$190 million, representing $53 million related to the Company's ownership
interest and occupancy of the Company's headquarters building, $50 million
for undeveloped mineral interests and real estate, $43 million for alternate
energy plants, $18 million for financial instruments and $26 million for
other adjustments, including gas contract issues. The financial statements of
SoCalGas were not affected by the quasi-reorganization.
Certain of the liabilities established in connection with discontinued
operations and the quasi-reorganization will be resolved in future years. As
of December 31, 1993, the provisions previously established for these matters
are adequate.
3. INCOME TAXES
In 1992, the Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," the effect of which was not material.
A reconciliation of the difference between computed statutory federal
income tax expense and actual income tax expense for continuing operations is
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
(Dollars in Millions) 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Computed statutory federal income tax expense $108 $ 88 $ 95
Increases (reductions) resulting from:
Temporary differences-SoCalGas 18 17 16
Federal income tax rate change (8)
State income taxes-net of federal income tax benefit 16 13 9
Research and development credit (6)
Investment tax credits (4) (4) (6)
Other-net 2 8 (3)
-------------------
Income tax expense from continuing operations $126 $122 $111
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
The components of income tax expense for continuing operations are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
(Dollars in Millions) 1993 1992 1991
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current $ 59 $ 20 $ 78
Deferred 38 82 18
---------------------
97 102 96
---------------------
State
Current 17 24 28
Deferred 12 (4) (13)
---------------------
29 20 15
---------------------
Total
Current 76 44 106
Deferred 50 78 5
---------------------
$126 $122 $111
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
</TABLE>
<PAGE>
31. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES (CONTINUED)
The principal components of net deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31
-----------------------------------------------------------
1993 1992
-----------------------------------------------------------
(Dollars in Millions) Assets Liabilities Total Assets Liabilities Total
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accelerated depreciation for tax purposes $ $382 $382 $ $378 $378
Net operating loss carryforward (83) (83) (150) (150)
Regulatory accounts receivable 162 162 111 111
Restructuring costs deferred for tax purposes (80) (80) (104) (104)
Deferred investment tax credits (32) (32) (33) (33)
Partnership income 36 36 35 35
Customer advances for construction (22) (22) (28) (28)
Regulatory asset 45 45 28 28
Other regulatory (154) 57 (97) (98) 34 (64)
AMT carryforward (69) (69) (20) (20)
Other (123) 54 (69) (110) 73 (37)
---------------------------------------------------------
Total deferred income tax (assets) liabilities $(563) $736 $173 $(543) $659 $116
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
As a result of the losses from discontinued operations, the Company has a net
operating loss carryforward for federal income tax purposes at December 31,
1993 of approximately $237 million, which expires in 2007. The tax benefit of
$83 million related to the net operating loss is included in deferred taxes.
No valuation allowance has been provided for deferred tax assets since they
are expected to be realized through either reversal of existing temporary
differences or future taxable income.
SoCalGas generally provides for income taxes on the basis of amounts
expected to be paid currently, except for the provision for deferred taxes on
regulatory accounts, customer advances for construction and accelerated
depreciation of property placed in service after 1980. In addition, SoCalGas
recognizes certain other deferred tax liabilities (primarily accelerated
depreciation of property placed in service prior to 1981 and deferred
investment tax credits) which are expected to be recovered through future
rates. At December 31, 1993 and 1992, $109 million and $105 million,
respectively, of deferred income taxes have been offset by an equivalent
amount in regulatory assets.
4. RESTRUCTURING OF GAS SUPPLY CONTRACTS AND COMPREHENSIVE SETTLEMENT OF
REGULATORY ISSUES
RESTRUCTURING OF GAS SUPPLY CONTRACTS. SoCalGas and the Company's gas
supply subsidiaries have reached agreements with suppliers of California
offshore and Canadian gas for a restructuring of long-term gas supply
contracts. The cost of these supplies to SoCalGas has been substantially in
excess of SoCalGas's average delivered cost of gas. During 1993, these excess
costs totaled approximately $125 million.
The agreements substantially reduce the ongoing delivered costs of these
gas supplies and provide lump sum settlement payments of $375 million to the
suppliers. The expiration date for the Canadian gas supply contract has been
shortened from 2012 to 2003, and the supplier of California offshore gas
continues to have an option to purchase related gas treatment and pipeline
facilities owned by the Company's gas supply subsidiary. The agreement with
the suppliers of Canadian gas is subject to certain Canadian regulatory and
other approvals.
COMPREHENSIVE SETTLEMENT OF REGULATORY ISSUES. SoCalGas and a number of
interested parties (including the Division of Ratepayer Advocates (DRA) of
the CPUC, large noncore customers and ratepayer groups) have proposed for
CPUC approval a comprehensive settlement of a number of pending regulatory
issues including partial rate recovery of restructuring costs associated with
the gas supply contracts discussed above. The Comprehensive Settlement, if
approved by the CPUC, would permit SoCalGas to recover in utility rates
approximately 80 percent of its contract restructuring costs of $375 million
and accelerated amortization of related pipeline assets of approximately $130
million, together with interest, over a period of approximately five years.
SoCalGas has filed a financing application with the CPUC primarily for the
borrowing of $425 million to provide for funds needed under the Comprehensive
Settlement. In addition to the gas supply issues, the Comprehensive
Settlement addresses the following other regulatory issues:
- - NONCORE CUSTOMER RATES. The Comprehensive Settlement also contemplates
changes in the CPUC ratemaking procedures for determining rates to be
charged by SoCalGas to its customers for the five-year period commencing
with the approval of the Comprehensive Settlement by the CPUC. Rates
charged to the customers would be established based upon SoCalGas's
recorded throughput to these customers for 1991. The existing limited
regulatory balancing account treatment for variances in noncore volumes
from those estimated in establishing rates would be eliminated subject
to a crediting mechanism for noncore revenues in excess of certain
limits. Consequently, SoCalGas would bear the full risk of any declines
in noncore
<PAGE>
32. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINNACIAL STATEMETNS (CONTINUED)
4. RESTRUCTURING OF GAS SUPPLY CONTRACTS AND COMPREHENSIVE SETTLEMENT OF
REGULATORY ISSUES (CONTINUED)
deliveries from 1991 levels. Any revenue enhancement from deliveries in
excess of 1991 levels will be limited by a crediting account mechanism
that will require a credit to customers of 87.5 percent of revenues in
excess of certain limits. These annual limits above which the credit is
applicable increase from $11 million to $19 million over the five-year
period to which the Comprehensive Settlement is applicable.
- - REASONABLENESS REVIEWS. The Comprehensive Settlement contemplates the
settlement of all pending CPUC reasonableness reviews with respect to
SoCalGas's gas purchases from 1989 through 1992 as well as certain other
future reasonableness review issues. The Comprehensive Settlement also
allows recovery of future excess interstate pipeline capacity costs in
SoCalGas rates.
- - GAS COST INCENTIVE MECHANISM. The Comprehensive Settlement contemplates
that a gas cost incentive mechanism (GCIM) would be implemented with an
initial term of three years. Gas costs in excess of a tolerance band
over average market price would be shared equally between ratepayers and
SoCalGas. Savings from gas purchased below the average market price
would be also shared equally between the ratepayers and SoCalGas. The
GCIM would provide a 4 1/2 percent tolerance band in 1994 and a 4 percent
tolerance band in 1995 and 1996. The GCIM is intended to replace the
current gas procurement reasonableness review process.
- - ATTRITION ALLOWANCES. The Comprehensive Settlement contemplates that
SoCalGas may receive annual allowances for operational attrition for
1995 and 1996 only to the extent that the annual inflation rate for
those years exceeds 2 percent and 3 percent, respectively. This is a
departure from past regulatory practice of allowing recovery of the full
effect of inflation in rates. SoCalGas intends to continue to attempt to
control operating expenses and investment in those years to amounts
authorized in rates to offset the effect of this regulatory change.
The Company believes the Comprehensive Settlement will be approved by
the CPUC and; therefore, it has been reflected in the Company's financial
statements. Approximately $465 million is included in Regulatory Accounts
Receivable and Regulatory Assets for the recovery of costs as provided in the
Comprehensive Settlement. Accounts Payable-Other includes the liability for
lump sum settlement payments of $375 million to restructure long-term gas
supply contracts. Property, Plant and Equipment-Net has been reduced for
accelerated amortization of pipeline related assets of $130 million. Upon
giving effect to liabilities previously recognized at the Company and
SoCalGas, the costs of the Comprehensive Settlement, including the
restructuring of gas supply contracts, did not result in any additional
charge to the Company's consolidated earnings. In the event the Comprehensive
Settlement is not approved by the CPUC, SoCalGas will seek other regulatory
approvals for the recovery of these costs.
5. COMMITMENTS AND CONTINGENT LIABILITIES
ENVIRONMENTAL OBLIGATIONS. SoCalGas has identified and reported to
California environmental authorities 42 former gas manufacturing sites for
which it (together with other utilities as to 21 of the sites) may have
remedial obligations under environmental laws. In addition, SoCalGas is one
of a large number of major corporations that have been named by federal
authorities as potentially responsible parties for environmental remediation
of two other industrial sites and a landfill site. These 45 sites are in
various stages of investigation or remediation. It is anticipated that the
investigation and, if necessary, remediation of these sites will be completed
over a period of from 10 years to 20 years.
The CPUC approved approximately $9 million in SoCalGas's base rates for
expenditures beginning in 1990 through 1993 associated with investigating
these sites. In addition, the CPUC previously has approved a special
ratemaking procedure with respect to environmental remediation costs under
which, upon approval by the CPUC on a site-by-site basis, these costs are
accumulated for recovery in future rates subject to a reasonableness review.
However, in a decision issued in late 1992 in connection with its initial
reasonableness review of these costs, the CPUC concluded that SoCalGas had
failed to demonstrate, by clear and convincing evidence, the reasonableness
for rate recovery of the applied for remediation costs under the existing
ratemaking procedure. The decision concluded that a reasonableness review
procedure may not be appropriate for rate recovery of environmental
remediation costs. In addition, the CPUC ordered SoCalGas along with other
California energy utilities and the DRA to work toward the development of an
alternate ratemaking procedure including cost sharing between shareholder and
ratepayers.
In November 1993, a collaborative settlement agreement between the above
parties was submitted to the CPUC for approval that recommends a ratemaking
mechanism that would provide recovery of 90 percent of environmental
investigation and remediation costs without reasonableness review. In
addition, the utilities
<PAGE>
33. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
would have the opportunity to retain a percentage of any insurance recoveries
to offset the 10 percent of costs not recovered in rates. A CPUC decision is
expected in mid-1994.
Through the end of 1993, preliminary investigations at 33 sites have
been completed by SoCalGas, and investigation and remediation liabilities are
estimated to be $82 million for all 45 sites. The liability estimated for
these sites is subject to future adjustment pending further investigation. In
1993 and 1992 the Company charged $7 million and $5 million, respectively, to
income and the remaining amount is included in Regulatory Assets. The Company
believes that any costs not ultimately recovered through rates, insurance or
other means, upon giving effect to previously established liabilities, will
not have a material adverse effect on the Company's financial statements.
LITIGATION. The Company and certain of its officers, directors and former
directors are defendants in seven shareholder actions. Three of the actions
are substantially identical shareholder derivative actions in which the
Company is named only as a nominal defendant. The derivative actions seek
recovery from the defendant directors on behalf of the Company for damages
asserted to have been suffered by the Company by alleged breaches of
fiduciary duties by the directors in connection with the Company's
diversification program. The remaining four actions are shareholder class
actions filed on behalf of shareholders who purchased shares of the Company
between June 5, 1990 and February 4, 1992 and seek recovery from the Company
and the defendant directors for damages asserted to have been suffered as a
result of allegedly improper disclosures under the federal securities laws.
In January 1994, the Company announced an agreement had been reached to
settle the shareholder lawsuits which were originally filed in February 1992.
The settlement, which is subject to court approval, totals $45 million. The
settlement and related legal costs, after giving effect to amounts paid by
other parties, had been fully provided in liabilities established in prior
years.
The Company is a defendant in various lawsuits arising in the normal
course of business; however, management believes that the resolution of these
pending claims and legal proceedings will not have a material adverse effect
on the Company's financial statements.
OTHER COMMITMENTS AND CONTINGENCIES. On January 17, 1994, SoCalGas's
service area was struck by a major earthquake. The result was a disruption in
service to less than 3 percent of its customers at any given time and damage
to some facilities. The financial impact of the damages related to the
earthquake not recovered by insurance are expected to be recovered in rates
under an existing regulatory mechanism, and should have no impact on the
Company's financial statements.
At December 31, 1993, commitments for capital expenditures were
approximately $30 million.
6. LEASES
The Company and its subsidiaries have leases on real and personal property
expiring at various dates from 1994 to 2011. The rentals payable under these
leases are determined on both fixed and percentage bases and most leases
contain options to extend which are exercisable by the Company or the
subsidiaries.
Rental expense under operating leases was $63 million, $62 million and
$46 million in 1993, 1992 and 1991, respectively.
The following is a schedule of future minimum operating lease
commitments as of December 31, 1993:
<TABLE>
<CAPTION>
Future Minimum
(Dollars in Millions) Lease Payments
- -----------------------------------------------------------
Year Ending December 31
<S> <C>
1994 $ 51
1995 48
1996 47
1997 46
1998 45
Later years 451
----
Total $688
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
In connection with the quasi-reorganization (see Note 2) and loss on disposal
of discontinued operations (see Note 2), the Company established reserves of
$102 million to fair value operating leases related to its headquarters and
other leases at December 31, 1992. The amount of these reserves was $97
million at December 31, 1993.
<PAGE>
34. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMPENSATING BALANCES AND SHORT-TERM BORROWING ARRANGEMENTS
The parent has $400 million of unsecured revolving credit with banks, which
have terms longer than one year and require fees of .250 percent per annum.
SoCalGas has an additional $825 million of unsecured revolving lines of
credit, of which $325 million is a multi-year credit agreement requiring
annual fees of .125 percent and $500 million is a 364 day credit agreement
requiring annual fees of .10 percent. At December 31, 1993 all bank lines of
credit were unused. The unused bank lines of credit support SoCalGas's
commercial paper program and provide liquidity for the Company.
At December 31, 1993 and 1992, the Company's short-term debt of $267
million and $215 million, respectively, consists of SoCalGas commercial paper
obligations. The weighted average annual interest rate of commercial paper
obligations outstanding was 3.25 percent and 3.81 percent at December 31,
1993 and 1992, respectively.
8. LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
-------------------
(Dollars in Millions) 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C>
SOUTHERN CALIFORNIA GAS COMPANY
FIRST MORTGAGE BONDS:
8 3/4% May 1, 1996 $ $ 17
8 1/2% October 1, 1997 20
6 1/2% December 15, 1997 125 125
5 1/4% March 1, 1998 100
9 3/8% June 15, 1998 100
6 7/8% August 15, 2002 100 100
5 3/4% November 15, 2003 100
9 3/8% March 1, 2016 100
9% December 1, 2016 100
9 5/8% November 1, 2018 125
9 3/4% December 1, 2020 18 120
8 3/4% October 1, 2021 150 150
7 3/8% March 1, 2023 100
7 1/2% June 15, 2023 125
6 7/8% November 1, 2025 175
OTHER LONG-TERM DEBT:
4.69% Notes, June 16, 1995 31
8 3/4% Notes, August 4, 1995 20 20
5.03% Notes, August 21, 1995 28 28
5.83% Notes, December 1, 1995 7 7
8 3/4% Notes, July 6, 1996 20 20
5.98% Notes, August 21, 1997 22 22
8 3/4% Notes, July 6, 2000 10 10
SFr. 100,000,000 5 1/8% Bonds,
February 6, 1998 (Foreign
currency exposure hedged through
currency swap at an interest rate of
9.725%) 47 47
SFr. 150,000,000 7 1/2% Foreign Interest
Payment Securities, May 14, 1996 75 75
-------------------
1,253 1,186
PACIFIC INTERSTATE COMPANIES
7.65%-10.0% 1994-1995 57 62
OTHER
4.38%-6.125% Revolving Credit,
September 27, 1993 150
4.4375% Revolving Credit, December 31, 1994 100
3.3125%-4.1875% Revolving Credit, February 15, 1995 475
8.0%-10.0% 1999-2004 28 30
-------------------
Total outstanding 1,338 2,003
-------------------
LESS:
Long-term debt due within one year 58 217
Unamortized debt discount less premium 18 12
-------------------
76 229
-------------------
Long-Term Debt $1,262 $1,774
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
</TABLE>
<PAGE>
35. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
The annual principal payment requirements, after deduction of long-term
debt held in treasury and including sinking fund payments, of long-term debt
for the years 1995 through 1998 are $90 million, $99 million, $151 million,
and $151 million, respectively. Substantially all of utility plant serves as
collateral for the First Mortgage Bonds, and certain assets of the nonutility
subsidiaries are pledged as collateral for their obligations.
During 1992, SoCalGas established irrevocable trusts to satisfy future
principal and interest payments related to $200 million of its first mortgage
bonds. The first mortgage bonds, accrued interest thereon and related
unamortized debt discount were removed from the 1992 Consolidated Balance
Sheet in an in-substance defeasance transaction.
EMPLOYEE STOCK OWNERSHIP PLAN AND TRUST (TRUST) (SEE NOTE 12).
The trust has an ESOP feature and covers substantially all employees.
The variable rate ESOP debt bears interest at a rate necessary to place or
remarket the notes at par. Principal is payable annually and interest is
payable monthly through 1999.
The trust holds approximately 3 million shares of common stock of the
Company. These shares are treated as outstanding shares in the financial
statements of the Company. The trust is used to fund the Company's retirement
savings plan program.
The Company is obligated to make contributions sufficient to satisfy
debt service requirements. This obligation is recorded as long-term debt,
with a corresponding reduction to shareholders' equity. As the trust repays
its debt, the liability will be reduced with a corresponding increase to
shareholders' equity. The trust debt is secured by letters of credit issued
by banks which expire in April 1996.
As the Company makes contributions to the trust, these contributions,
plus any dividends paid on the Company's common stock held by the trust, will
be used to repay the debt. As dividends are increased or decreased, required
contributions are reduced or increased, respectively. Interest on ESOP debt
amounted to $6 million in 1993, $8 million in 1992 and $10 million in 1991.
Dividends used for debt service amounted to $2 million, $2 million and $15
million in 1993, 1992 and 1991, respectively, and are deductible for federal
income tax purposes.
CURRENCY AND INTEREST RATE SWAPS. In February 1986, SoCalGas issued SFr.
100 million of 5 1/8 percent bonds which will mature on February 6, 1998.
SoCalGas has entered into a swap transaction with a major international bank
to hedge the currency exposure. The terms of the swap result in a U.S. dollar
liability of $47 million at an interest rate of 9.725 percent with the
principal payable on February 6, 1998.
In May 1986, SoCalGas issued SFr. 150 million of 7 1/2 percent Foreign
Interest Payment Securities which are renewable at 10-year intervals at reset
interest rates. Interest is payable in U.S. dollars. The principal was
exchanged into $75 million at an exchange rate of 1.9925, which is also the
minimum rate of exchange for determining the amount of principal repayable in
Swiss francs.
The Company has entered into interest rate swap agreements to reduce the
impact of fluctuations in interest rates on its floating rate debt. The
differential of interest to be paid or received is accrued as interest rates
change and is recognized over the life of the agreements.
During 1993 and 1992, the Company had outstanding interest rate swaps
related to continuing operations which effectively set $100 million of ESOP
debt to a fixed 7.3 percent until September 15, 1995 and $50 million of its
commercial paper to a fixed 9.448 percent until December 15, 1992. At
December 31, 1993 and 1992, the Company also had outstanding two interest
rate swaps related to discontinued operations which set the interest rate on
$100 million of long-term debt to a fixed 9.12 percent until September 5,
1995 and $125 million of long-term debt to a fixed 8.445 percent until
December 5, 1994. The swaps related to continuing operations were adjusted to
market value in the 1992 quasi-reorganization. Losses on the swaps related to
discontinued operations were included in the 1992 loss on disposal.
The Company is exposed to credit losses in the event of nonperformance
by the other parties to the interest rate swap agreements. However, the
Company does not anticipate nonperformance by the counterparties.
<PAGE>
36. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents approximates fair value
because of the short maturity of those instruments.
The Flexible Auction preferred stocks of SoCalGas approximate fair value
since they are remarketed periodically. The debt of the ESOP approximates
fair market value based on rates currently available to the Company for debt
with similar terms and maturity.
Interest rate swaps were adjusted to fair value as part of the
quasi-reorganization. The fair value of interest rate swaps is the estimated
amount that the bank would receive or pay to terminate the swap agreements at
the reporting date, taking into account current interest rates and the
current credit worthiness of the swap counterparties. The carrying amount of
interest rate swaps approximates fair value.
The fair value of SoCalGas's long-term debt and 6 percent preferred, 6
percent Series A preferred and 7 3/4 percent preferred stock is estimated based
on the quoted market prices for the same or similar issues or on the current
rates offered to the Company for debt of similar remaining maturities. The
fair value of these financial instruments is different from the carrying
amount. These instruments were not adjusted to fair value in the
quasi-reorganization because they represent obligations of the rate regulated
subsidiaries which are recoverable in future rates.
The following financial instruments have a fair value which is different
from the carrying amount as of December 31.
<TABLE>
<CAPTION>
1993 1992
------------------- ------------------
Carrying Fair Carrying Fair
(Dollars in Millions) Amount Value Amount Value
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-Term Debt of SoCalGas $1,253 $1,272 $1,186 $1,228
Preferred Stocks of SoCalGas $ 95 $ 94 $ 20 $ 16
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
10. PREFERRED STOCKS OF A SUBSIDIARY
The amount of preferred stocks of SoCalGas outstanding is as follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------------------- -----------------------------
Number Millions Number Millions
of Shares of Dollars of Shares of Dollars
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6%, $25 par value 29,642 $ 1 31,220 $ 1
6% Series A, $25 par value 783,032 19 783,032 19
Series Preferred, no par value
Flexible Auction, Series A 500 50 500 50
Flexible Auction, Series B 750 75
Flexible Auction, Series C 500 50 500 50
7 3/4%, $25 Stated Value 3,000,000 75
---- ----
$195 $195
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
37. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. PREFERRED STOCKS OF A SUBSIDIARY (CONTINUED)
Each issue of the Flexible Auction Series Preferred Stock is auctioned on
specified dividend dates. The term of each subsequent dividend period is, at
SoCalGas's option, 49 days or longer, not to exceed ten years. The weighted
average dividend rates for the Flexible Auction Preferred Stock for 1993, 1992
and 1991 were: Series A, 2.67 percent, 3.21 percent and 4.77 percent,
respectively; Series B, 3.28 percent, 3.24 percent and 4.89 percent,
respectively; Series C, 2.75 percent, 3.28 percent and 4.1 percent,
respectively. Subsequent dividend rates may be affected by general market
conditions and the credit rating assigned to the Flexible Auction Series
Preferred Stock. SoCalGas has the option of redeeming the shares, in whole
or in part, at $100,000 per share plus accumulated dividends on any scheduled
dividend payment date.
In January 1993, SoCalGas issued 3 million shares of 7 3/4 percent Series
Preferred Stock. The proceeds of $75 million were used to redeem the Flexible
Auction Series Preferred Stock, Series B.
11. PREFERRED STOCK
The Company has 1,500 shares of Remarketed Preferred (RP) Stock outstanding
with a liquidation preference of $100,000 per share. The RP shares are
remarketed by designated agents at specified dividend dates. In connection with
the remarketing process, the holders of the shares may elect dividend periods
of seven or 49 days. The dividend rate may be affected by general market
conditions and the credit rating assigned to the RP shares. On September 10,
1991, the Company established a special dividend period for 500 shares of RP
stock ending October 11, 1994 at a dividend rate of 7.5 percent per year. The
weighted average dividend rates for 1993 and 1992 were 6.2 percent and 7.17
percent, respectively. The Company has the option of redeeming the rp shares,
in whole or in part, at $100,000 per share plus accumulated dividends on any
scheduled dividend payment date.
All or any part of every series of presently outstanding preferred stock is
subject to redemption at the Company's option at any time upon not less than 30
days notice, at the applicable redemption prices for each series, together with
the accrued and accumulated dividends to the date of redemption. None of the
outstanding issues of preferred stock has any conversion rights.
The number of shares of preferred stock and class A preferred stock
authorized and outstanding is as follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
Redemption ------------------------------ ------------------------------
Price Shares Shares Shares Shares
Per Share Authorized Outstanding Authorized Outstanding
- -----------------------------------------------------------------------------------------------------------------------------
Preferred stock-cumulative, no par value:
<S> <C> <C> <C> <C> <C>
Remarketed, Series A $100,000.00 1,500 1,500 1,500 1,500
$7.64 Dividend 101.00 300,000 300,000 300,000 300,000
$4.75 Dividend 100.00 200,000 200,000 200,000 200,000
$4.50 Dividend 100.00 300,000 300,000 300,000 300,000
$4.40 Dividend 101.50 100,000 100,000 100,000 100,000
$4.36 Dividend 101.00 200,000 200,000 200,000 200,000
$4.75 Dividend 101.00 353 353 403 403
Unclassified 8,898,147 8,898,097
----------------------------------------------------------------------
Total preferred 10,000,000 1,101,853 10,000,000 1,101,903
----------------------------------------------------------------------
----------------------------------------------------------------------
Class A preferred stock-cumulative, no par value 5,000,000 5,000,000
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
38. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS
PENSION PLANS. The Company and certain subsidiaries have noncontributory
pension plans covering substantially all of their employees. Over 90 percent
of the employees covered by the plans are employed by SoCalGas. Benefits are
based on an employee's years of service and compensation during his or her
last years of employment. The Company's policy is to fund the plans annually
at a level which is fully deductible for federal income tax purposes and as
necessary on an actuarial basis to provide assets sufficient to meet the
benefits to be paid to plan members.
Pension expense for continuing operations was as follows:
<TABLE>
<CAPTION>
Year Ended December 31
------------------------
(Dollars in Millions) 1993 1992 1991
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the period $ 34 $ 34 $ 31
Interest cost on projected benefit obligation 84 82 75
Actual return on plan assets (160) (72) (233)
Net amortization and deferral 57 (14) 154
------------------------
Net periodic pension cost 15 30 27
Special early retirement program 18 12
Regulatory adjustment 1 (9) 1
-------------------------
Total pension expense $ 34 $ 33 $ 28
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
</TABLE>
A reconciliation of the plans' funded status to the pension liability
recognized in the Consolidated Balance Sheet is as follows:
<TABLE>
<CAPTION>
December 31
----------------
(Dollars in Millions) 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of pension benefit obligations:
Accumulated benefit obligation, including $862 and $717 in vested
benefits at December 31, 1993 and 1992, respectively $ 981 $ 820
Effect of future salary increases 278 286
----------------
Projected benefit obligation 1,259 1,106
Plan assets at fair value, primarily publicly traded common stocks and
equity pooled funds 1,348 1,213
----------------
Plan assets greater than projected benefit obligation 89 107
Unrecognized net gain (161) (183)
Unrecognized prior service cost 42 45
Unrecognized transition obligation 13 16
-----------------
Accrued pension liability included in the Consolidated Balance Sheet $ (17) $ (15)
-----------------
The plans' major actuarial assumptions include:
Weighted average discount rate 7% 8%
Rate of increase in future compensation levels 5% 6%
Expected long-term rate of return on plan assets 8 1/2% 8 1/2%
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
39. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
POSTRETIREMENT BENEFIT PLANS. In 1992, the Company adopted Statement of
Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106). SFAS 106 requires the
accrual of the cost of certain postretirement benefits other than pensions over
the active service period of the employee. The Company previously recorded
these costs when paid or funded. SFAS 106 allows amortization of the cumulative
adjustment over 20 years. However, at December 31, 1992, the Company
implemented a quasi-reorganization and accrued the postretirement liability at
its entire fair value. The CPUC and the FERC in late 1992 authorized SFAS 106
amounts to be recovered in rates for the regulated entities; therefore, a
regulatory asset has been recorded to reflect the portion of the liability
which will be recovered in future rates. The cumulative impact of $5 million
after-tax for the nonregulated portion of the postretirement liability was
charged to common stock as part of the quasi-reorganization in 1992.
The Company's postretirement benefit plan currently provides medical and
life insurance benefits to qualified retirees. In the past, employee
cost-sharing provisions have been implemented to control the increasing costs
of these benefits. Other changes could occur in the future. The Company's
policy is to fund these benefits at a level which is fully tax deductible for
federal income tax purposes, not to exceed amounts recoverable in rates for
regulated companies, and as necessary on an actuarial basis to provide assets
sufficient to be paid to plan participants. The net periodic postretirement
benefit cost was as follows:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
(Dollars in Millions) 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Service cost-benefits earned during the period $ 12 $ 12
Interest cost on projected benefit obligation 28 26
Actual return on plan assets (10) (4)
Net amortization and deferral 3 11
---------------
Net periodic postretirement benefit cost 33 45
Regulatory adjustment 13 (21)
----------------
Net postretirement benefit cost $ 46 $ 24
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
A reconciliation of the plan's funded status to the postretirement liability
recognized in the Consolidated Balance Sheet is as follows:
<TABLE>
<CAPTION>
December 31
----------------
(Dollars in Millions) 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 162 $ 127
Fully eligible active plan participants 187 176
Other active plan participants 32 41
----------------
381 344
Plan assets at fair value, primarily publicly traded common stocks and
equity pooled funds (114) (77)
Unrecognized net loss (6)
----------------
Net postretirement benefit liability included in the Consolidated Balance Sheet $ 261 $ 267
----------------
----------------
The plan's major actuarial assumptions include:
Health care cost trend rate 8% 9%
Weighted average discount rate 7% 8%
Rate of increase in future compensation levels 5% 6%
Expected long-term rate of return on plan assets 8 1/2% 8 1/2%
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
40. PACIFIC ENTERPRISES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. PENSION, POSTRETIREMENT AND OTHER EMPLOYEE BENEFIT PLANS (CONTINUED)
The assumed health care cost trend rate is 8 percent for 1994. The trend
rate is expected to decrease from 1995 to 1998 with a 6 percent ultimate trend
rate thereafter. The effect of a one-percentage-point increase in the assumed
health care cost trend rate for each future year is $40 million on the aggregate
of the service and interest cost components of net periodic postretirement cost
for 1993 and $65 million on the accumulated postretirement benefit obligation at
December 31, 1993. The estimated income tax rate used in the return on plan
assets is zero since the assets are invested in tax exempt funds.
OTHER EMPLOYEE BENEFIT PLANS. At December 31, 1992, the Company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (SFAS 112). SFAS 112 requires the accrual of the
obligation to provide benefits to former or inactive employees after employment
but before retirement. The adoption of SFAS 112 resulted in the recognition of a
$35 million liability, primarily for disability benefits. There was no impact on
earnings since these costs are currently recovered in rates as paid, and as
such, have been reflected as a regulatory asset. At December 31, 1993, the
liability was $39 million.
Upon completion of one year of service, all employees of the Company and
certain subsidiaries are eligible to participate in the Company's retirement
savings plan administered by bank trustees. Employees may contribute from 1
percent to 14 percent of their regular earnings. The Company generally
contributes an amount of cash or a number of shares of the Company's common
stock of equivalent fair market value which, when added to prior forfeitures,
will equal 50 percent of the first 6 percent of eligible base salary contributed
by employees. The employees' contributions, at the direction of the employees,
are primarily invested in the Company's common stock, mutual funds or guaranteed
interest accounts. The Company's contributions, which were invested in the
Company's common stock, were $9 million in 1991 and 1992. In 1993 the Company's
contributions were funded by the Pacific Enterprises Employee Stock Ownership
Plan and Trust.
The Company retained Thrifty's Profit Sharing Plan and Trust as Pacific
Enterprises Employee Stock Ownership Plan and Trust (TRUST) subsequent to the
sale of the retailing operations. The Company funds contributions, as required,
to service the TRUST debt. All contributions to the TRUST are made by the
Company, and there are no contributions by the participants. The Company's net
contributions (and compensation expense) were 1993, $9 million; 1992, $20
million and 1991, $6 million. The 1992 and 1991 amounts are included in
discontinued operations. The level of net contributions to the trust by the
Company is dependent on the amount of dividends paid on the unallocated shares
held by the trust and the quarterly payments made by the buyer of the retailing
operations (See Note 2).
<PAGE>
41. PACIFIC ENTERPRISES
STATEMENT OF MANAGEMENT RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements have been prepared by management. The
integrity and objectivity of these financial statements and the other financial
information in the Annual Report, including the estimates and judgments on which
they are based, are the responsibility of management. The financial statements
have been audited by Deloitte & Touche, independent certified public
accountants, appointed by the Board of Directors. Their report is shown below.
Management has made available to Deloitte & Touche all of the Company's
financial records and related data, as well as the minutes of shareholders' and
directors' meetings.
Management maintains a system of internal accounting control which it
believes is adequate to provide reasonable, but not absolute, assurance that
assets are properly safeguarded and accounted for, that transactions are
executed in accordance with management's authorization and are properly recorded
and reported, and for the prevention and detection of fraudulent financial
reporting. Management monitors the system of internal control for compliance
through its own review and a strong internal auditing program which also
independently assesses the effectiveness of the internal controls. In
establishing and maintaining internal controls, the Company exercises judgment
in determining that the costs of such controls do not exceed the benefits to be
derived.
Management acknowledges its responsibility to provide financial information
(both audited and unaudited) that is representative of the Company's operations,
reliable on a consistent basis, and relevant for a meaningful financial
assessment of the Company. Management believes that the control process enables
them to meet this responsibility.
Management also recognizes its responsibility for fostering a strong ethical
climate so that the Company's affairs are conducted according to the highest
standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Company's code of corporate conduct, which is
publicized throughout the Company. The Company maintains a systematic program to
assess compliance with this policy.
The Board of Directors has an Audit Committee composed solely of directors
who are not officers or employees. The Committee recommends for approval by the
full Board the appointment of the independent auditors. The Committee meets
periodically with management, with the Company's internal auditors, and with the
independent auditors. The independent auditors and the internal auditors also
meet alone with the Audit Committee and have free access to the Audit Committee
at any time.
/s/Willis B. Wood Jr. /s/ Lloyd A. Levitin
Willis B. Wood, Jr. Lloyd A. Levitin
CHAIRMAN AND EXECUTIVE VICE PRESIDENT, TREASURER
CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
January 31, 1994
INDEPENDENT AUDITORS' REPORT
[LOGO]
Pacific Enterprises:
We have audited the consolidated financial statements of Pacific Enterprises and
subsidiaries (pages 23 to 40) as of December 31, 1993 and 1992, and for each of
the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pacific
Enterprises and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche
Los Angeles, California
January 31, 1994
<PAGE>
42. PACIFIC ENTERPRISES
SELECTED FINANCIAL DATA AND
COMPARATIVE STATISTICS 1983-1993
<TABLE>
<CAPTION>
(Dollars in millions, except per-share amounts) 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated:
Operating revenues from continuing operations $2,899 $2,900 $3,007 $3,376
-----------------------------------------------------------------
-----------------------------------------------------------------
Income from continuing operations $ 181 $ 136 $ 167 $ 142
Income (loss) from discontinued operations (686) (255) (201)
-----------------------------------------------------------------
Net income (loss) 181 (550) (88) (59)
Dividends on preferred stock 15 16 16 17
-----------------------------------------------------------------
Net income (loss) applicable to common stock $ 166 $ (566) $ (104) $ (76)
-----------------------------------------------------------------
-----------------------------------------------------------------
Net income (loss) per share of common stock:
Continued operations $ 2.06 $ 1.60 $ 2.09 $ 1.78
Discontinued operations (9.17) (3.54) (2.87)
-----------------------------------------------------------------
$ 2.06 $(7.57) $(1.45) $(1.09)
-----------------------------------------------------------------
-----------------------------------------------------------------
Cash dividends per share of common stock $ 0.60 $ 0.44 $ 2.62 $ 3.48
Common shareholders' equity per share $12.19 $ 9.44 $19.74 $23.07
Capital expenditures of continuing operations $ 331 $ 329 $ 335 $ 386
Total assets $5,596 $5,414 $5,462 $5,702
Capitalization
Short-term debt $ 267 $ 215 $ 123 $ 491
Long-term debt due within one year 58 217 25 30
Long-term debt 1,262 1,774 1,776 1,161
Long-term debt of ESOP 132 141 149 163
Obligations under capital leases
Preferred stocks of a subsidiary:
Redeemable
Nonredeemable 195 195 195 145
Preferred stock 258 258 258 258
Common stock 1,048 859 1,458 1,385
Retained earnings 116 146 419
Less deferred compensation relating to ESOP 138 148 163 173
-----------------------------------------------------------------
Total $3,198 $3,511 $3,967 $3,879
-----------------------------------------------------------------
-----------------------------------------------------------------
Total capitalization,
net of short-term investments $3,050 $3,089 $3,873 $3,703
-----------------------------------------------------------------
-----------------------------------------------------------------
Number of employees 9,200 9,884 40,953 42,370
SoCalGas:
Gas revenues
Residential $1,653 $1,484 $1,674 $1,548
Commercial/Industrial 853 836 977 1,057
Utility electric generation 147 195 149 235
Wholesale 117 129 145 165
Exchange 4 6 7 8
-----------------------------------------------------------------
Total $2,774 $2,650 $2,952 $3,013
-----------------------------------------------------------------
-----------------------------------------------------------------
Gas volumes delivered (billion cubic feet):
Residential 248 244 249 262
Commercial/Industrial 339 363 460 436
Utility electric generation 213 221 170 159
Wholesale 148 149 142 139
Exchange 17 24 26 30
-----------------------------------------------------------------
Total 965 1,001 1,047 1,026
-----------------------------------------------------------------
-----------------------------------------------------------------
Gas volumes sold (billion cubic feet) 352 355 411 515
Gas volumes transported or exchanged
(billion cubic feet) 613 646 636 511
-----------------------------------------------------------------
Total 965 1,001 1,047 1,026
-----------------------------------------------------------------
-----------------------------------------------------------------
Number of customers:
Residential 4,459,250 4,445,500 4,429,896 4,381,563
Commercial 187,602 189,364 193,051 193,409
Industrial 23,924 24,419 25,642 26,530
Utility electric generation/wholesale 11 10 10 10
-----------------------------------------------------------------
Total number of customers 4,670,787 4,659,293 4,648,599 4,601,512
-----------------------------------------------------------------
-----------------------------------------------------------------
Gas purchased (billion cubic feet):
Market gas:
30-day 85 21 140 149
Other 159 198 168 226
-----------------------------------------------------------------
Total market gas 244 219 308 375
Affiliates 97 99 99 103
Other long-term supplies 28 42 39 53
-----------------------------------------------------------------
Total gas purchased 369 360 446 531
-----------------------------------------------------------------
-----------------------------------------------------------------
Average cost of gas purchased excluding
fixed costs
(per thousand cubic feet) $ 2.21 $ 2.24 $ 2.40 $ 2.59
Weighted average rate base $2,769 $2,720 $2,663 $2,549
Authorized rate of return on:
Rate base 9.99% 10.49% 10.79% 10.75%
Common equity 11.90% 12.65% 13.00% 13.00%
Degree Days 1,255 1,258 1,409 1,432
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
<PAGE>
43. PACIFIC ENTERPRISES
<TABLE>
<CAPTION>
(Dollars in millions, except per-share amounts) 1989 1988 1987 1986
- ------------------------------------------------- ------------------------------------------------------------
<S> <C> <C> <C> <C>
Consolidated:
Operating revenues from continuing operations $3,344 $3,301 $3,385 $3,691
------------------------------------------------------------
------------------------------------------------------------
Income from continuing operations $ 142 $ 142 $ 148 $ 138
Income (loss) from discontinued operations 64 75 101 (56)
------------------------------------------------------------
Net income (loss) 206 217 249 82
Dividends on preferred stock 13 6 6 6
------------------------------------------------------------
Net income (loss) applicable to common stock $ 193 $ 211 $ 243 $ 76
------------------------------------------------------------
------------------------------------------------------------
Net income (loss) per share of common stock:
Continued operations $ 1.98 $ 2.20 $ 2.40 $ 2.27
Discontinued operations .99 1.23 1.70 (.96)
------------------------------------------------------------
$ 2.97 $ 3.43 $ 4.10 $ 1.31
------------------------------------------------------------
------------------------------------------------------------
Cash dividends per share of common stock $ 3.48 $ 3.48 $ 3.48 $ 3.48
Common shareholders' equity per share $27.10 $28.26 $27.05 $26.21
Capital expenditures of continuing operations $ 340 $ 351 $ 328 $ 332
Total assets $5,874 $5,496 $4,374 $4,584
Capitalization
Short-term debt $ 637 $ 572 $ 128 $ 469
Long-term debt due within one year 30 65 72 16
Long-term debt 1,045 1,220 1,067 1,194
Long-term debt of ESOP 173 31 38 44
Obligations under capital leases 25 26 27
Preferred stocks of a subsidiary:
Redeemable 60 60 60 60
Nonredeemable 70 20 20 20
Preferred stock 258 110 110 110
Common stock 1,331 1,066 875 855
Retained earnings 738 770 771 734
Less deferred compensation relating to ESOP 189 31 38 44
------------------------------------------------------------
Total $4,153 $3,908 $3,129 $3,485
------------------------------------------------------------
------------------------------------------------------------
Total capitalization,
net of short-term investments $3,866 $3,773 $3,086 $3,429
------------------------------------------------------------
------------------------------------------------------------
Number of employees 43,891 40,538 27,928 26,571
SoCalGas:
Gas revenues
Residential $1,484 $1,482 $1,496 $1,275
Commercial/Industrial 1,016 1,008 1,059 1,068
Utility electric generation 483 554 662 610
Wholesale 192 252 302 362
Exchange 8 12 18 19
------------------------------------------------------------
Total $3,183 $3,308 $3,537 $3,334
------------------------------------------------------------
------------------------------------------------------------
Gas volumes delivered (billion cubic feet):
Residential 255 253 259 234
Commercial/Industrial 400 344 269 223
Utility electric generation 202 199 309 225
Wholesale 146 144 159 124
Exchange 30 39 55 55
------------------------------------------------------------
Total 1,033 979 1,051 861
------------------------------------------------------------
------------------------------------------------------------
Gas volumes sold (billion cubic feet) 594 654 759 767
Gas volumes transported or exchanged
(billion cubic feet) 439 325 292 94
------------------------------------------------------------
Total 1,033 979 1,051 861
------------------------------------------------------------
------------------------------------------------------------
Number of customers:
Residential 4,295,838 4,196,010 4,086,365 3,969,671
Commercial 192,269 190,908 189,611 186,773
Industrial 26,957 27,133 27,227 27,942
Utility electric generation/wholesale 9 9 8 8
------------------------------------------------------------
Total number of customers 4,515,073 4,414,060 4,303,211 4,184,394
------------------------------------------------------------
------------------------------------------------------------
Gas purchased (billion cubic feet):
Market gas:
30-day 202 219 271 242
Other 161 87 48
------------------------------------------------------------
Total market gas 363 306 319 242
Affiliates 104 118 113 113
Other long-term supplies 149 247 343 421
------------------------------------------------------------
Total gas purchased 616 671 775 776
------------------------------------------------------------
------------------------------------------------------------
Average cost of gas purchased excluding
fixed costs
(per thousand cubic feet) $ 2.46 $ 2.39 $ 2.20 $ 2.52
Weighted average rate base $2,386 $2,268 $2,167 $2,092
Authorized rate of return on:
Rate base 10.96% 10.93% 11.51% 12.74%
Common equity 13.00% 12.75% 13.90% 14.60%
Degree Days 1,344 1,354 1,498 1,058
------------------------------------------------------------
------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(Dollars in millions, except per-share amounts) 1985 1984 1983
- ------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
Consolidated:
Operating revenues from continuing operations $4,955 $4,682 $4,537
---------------------------------------------
---------------------------------------------
Income from continuing operations $ 105 $ 96 $ 148
Income (loss) from discontinued operations 82 69 41
---------------------------------------------
Net income (loss) 187 165 189
Dividends on preferred stock 6 6 6
---------------------------------------------
Net income (loss) applicable to common stock $ 181 $ 159 $ 183
---------------------------------------------
Net income (loss) per share of common stock: ---------------------------------------------
Continued operations $ 1.78 $ 1.69 $ 2.90
Discontinued operations 1.47 1.30 .83
---------------------------------------------
$ 3.25 $ 2.99 $ 3.73
---------------------------------------------
---------------------------------------------
Cash dividends per share of common stock $ 3.36 $ 3.20 $ 3.04
Common shareholders' equity per share $27.70 $27.38 $26.29
Capital expenditures of continuing operations $ 372 $ 381 $ 303
Total assets $4,134 $4,228 $3,907
Capitalization
Short-term debt $ 81 $ 229 $ 171
Long-term debt due within one year 48 87 17
Long-term debt 1,151 1,205 1,253
Long-term debt of ESOP 37
Obligations under capital leases 27
Preferred stocks of a subsidiary:
Redeemable 60 60 60
Nonredeemable 20 21 21
Preferred stock 110 110 110
Common stock 759 697 607
Retained earnings 838 801 763
Less deferred compensation relating to ESOP 37
---------------------------------------------
Total $3,094 $3,210 $3,002
---------------------------------------------
---------------------------------------------
Total capitalization,
net of short-term investments $3,081 $3,140 $3,002
---------------------------------------------
---------------------------------------------
Number of employees 26,550 25,965 25,551
SoCalGas:
Gas revenues
Residential $1,596 $1,440 $1,483
Commercial/Industrial 1,392 1,356 1,364
Utility electric generation 1,380 1,258 1,146
Wholesale 534 524 490
Exchange 14 12 11
---------------------------------------------
Total $4,916 $4,590 $4,494
---------------------------------------------
---------------------------------------------
Gas volumes delivered (billion cubic feet):
Residential 267 237 257
Commercial/Industrial 223 203 209
Utility electric generation 318 248 223
Wholesale 130 118 107
Exchange 44 28 33
---------------------------------------------
Total 982 834 829
---------------------------------------------
---------------------------------------------
Gas volumes sold (billion cubic feet) 938 806 796
Gas volumes transported or exchanged
(billion cubic feet) 44 28 33
---------------------------------------------
Total 982 834 829
---------------------------------------------
---------------------------------------------
Number of customers:
Residential 3,878,861 3,796,332 3,731,569
Commercial 189,068 187,010 180,259
Industrial 29,047 29,267 29,346
Utility electric generation/wholesale 8 8 8
---------------------------------------------
Total number of customers 4,096,984 4,012,617 3,941,182
---------------------------------------------
---------------------------------------------
Gas purchased (billion cubic feet):
Market gas:
30-day 118
Other
---------------------------------------------
Total market gas 118
Affiliates 116 60 35
Other long-term supplies 705 766 778
---------------------------------------------
Total gas purchased 939 826 813
---------------------------------------------
---------------------------------------------
Average cost of gas purchased excluding
fixed costs
(per thousand cubic feet) $ 3.31 $ 3.70 $ 3.86
Weighted average rate base $1,968 $1,910 $1,715
Authorized rate of return on:
Rate base 13.04% 12.92% 12.80%
Common equity 15.75% 15.75% 15.75%
Degree Days 1,663 1,245 1,380
---------------------------------------------
---------------------------------------------
</TABLE>
<PAGE>
44. PACIFIC ENTERPRISES
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
1993
------------------------------------------------------------------------
(Dollars are in millions, except per-share amounts) Mar 31 Jun 30 Sep 30 Dec 31 Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues from continuing operations $ 773 $ 652 $ 649 $ 825 $ 2,899
Net income $ 38 $ 42 $ 54 $ 47 $ 181
Net income per share of common stock $ .45 $ .49 $ .59 $ .52 $ 2.06
Dividends declared per share of common stock $ $ .30 $ .30 $ $ .60
Dividends paid per share of common stock $ $ $ .30 $ .30 $ .60
Weighted average number of shares of common stock
outstanding (in thousands) 75,367 78,673 83,702 84,014 80,472
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Three Months Ended
------------------------------------------------------------------------
1992
------------------------------------------------------------------------
(Dollars are in millions, except per-share amounts) Mar 31 Jun 30 Sep 30 Dec 31 Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues from continuing operations $ 747 $ 648 $ 630 $ 875 $ 2,900
Income (loss):
Continuing operations $ 34 $ 33 $ 33 $ 36 $ 136
Discontinued operations (498) (151) (37) (686)
------------------------------------------------------------------------
Net income (loss) $ (464) $ (118) $ 33 $ (1) $ (550)
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) per share of common stock:
Continuing operations $ .41 $ .39 $ .38 $ .42 $ 1.60
Discontinued operations (6.77) (2.02) (.49) (9.17)
------------------------------------------------------------------------
Net income (loss) per share of common stock $ (6.36) $ (1.63) $ .38 $ (.07) $ (7.57)
------------------------------------------------------------------------
------------------------------------------------------------------------
Dividends declared per share of common stock $ .44 $ $ $ $ .44
Dividends paid per share of common stock $ .44 $ $ $ $ .44
Weighted average number of shares of common stock
outstanding (in thousands) 73,589 74,646 75,000 75,217 74,820
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
PACIFIC ENTERPRISES
RANGE OF MARKET PRICES OF CAPITAL STOCK
<TABLE>
<CAPTION>
1993
---------------------------------------------------------------------------------------
Three Months Ended Mar 31 Jun 30 Sep 30 Dec 31
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 25 - 18 1/2 25 - 21 3/8 27 3/8 - 23 7/8 27 3/8 - 23 5/8
Preferred Stock:
$7.64 96 7/8 - 86 1/2 100 1/2 - 93 1/2 101 3/4 - 97 1/2 102 7/8 - 97
$4.75 62 5/8 - 52 1/2 65 3/8 - 60 1/2 70 3/4 - 63 1/2 69 1/4 - 65 1/4
$4.50 62 - 50 1/2 63 5/8 - 57 3/8 68 - 60 1/4 66 1/8 - 61 3/8
$4.40 62 - 51 1/2 60 1/2 - 57 7/8 64 3/4 - 60 1/8 65 7/8 - 61
$4.36 61 - 47 3/8 60 - 55 63 1/8 - 59 3/4 64 1/8 - 58 3/4
Remarketed (1)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
1992
---------------------------------------------------------------------------------------
Three Months Ended Mar 31 Jun 30 Sep 30 Dec 31
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 27 3/8 - 17 3/8 22 3/4 - 18 3/4 20 3/4 - 17 1/2 20 1/8 - 17 5/8
Preferred Stock:
$7.64 86 - 71 85 - 80 90 3/8 - 83 1/8 92 - 87 1/8
$4.75 57 - 46 1/2 53 1/4 - 50 1/8 57 - 53 57 - 53
$4.50 51 3/8 - 44 1/8 52 - 47 3/8 54 5/8 - 49 5/8 55 - 50
$4.40 53 - 44 51 7/8 - 46 1/8 56 1/4 - 51 56 7/8 - 49 1/8
$4.36 49 7/8 - 43 52 - 45 3/4 53 1/8 - 48 1/2 54 5/8 - 49
Remarketed (1)
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
<FN>
(1) SEE NOTE 11 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</TABLE>
Market prices for the common stock are as reported on the composite tape for
stocks listed on the New York Stock Exchange.
Market prices for the preferred stock were obtained from the American Stock
Exchange.
The number of shareholders of common stock at December 31, 1993; 45,414.
<PAGE>
Exhibit 22.01
LIST OF SUBSIDIARIES
OF PACIFIC ENTERPRISES
Burney Mountain Power
Central Plants, Inc.
Coalition Undertaking Remedial Efforts, Inc.
EcoTrans Aftermarket Corporation
EcoTrans OEM Corporation
FTM Sports Corporation
Landfill Control Technologies
Mammoth Geothermal Company
Mammoth Power Company
Mt. Lassen Power
Pacific Bio-Energy Company
Pacific Energy
Pacific Energy Resources Incorporated
Pacific Enterprises
Pacific Enterprises ABC Corporation
Pacific Enterprises Commercial Loans, Inc.
Pacific Enterprises Leasing Company
Pacific Enterprises Oil Company
Pacific Enterprises Oil Company (Canada)
Pacific Enterprises Oil Company (USA)
Pacific Enterprises Oil Company (Western)
Pacific Enterprises Minerals Company
Pacific Gas Gathering Company
Pacific Geothermal Company
Pacific Hydropower Company
Pacific Interstate Company
Pacific Interstate Mojave Company
Pacific Interstate Offshore Company
Pacific Interstate Transmission Company
Pacific Interstate Transmission Company (Arctic)
Paciifc Library Tower
Pacific Lighting Corporation
Pacific Lighting Gas Development Company
Pacific Lighting Land Company
Pacific Lighting Real Estate Group
Pacific Offshore Pipeline Company
Pacific Oroville Power, Inc.
Pacific Penobscot Power Company
Pacific Recovery Corporation
Pacific Synthetic Fuel Company
Pacific Western Resources Company
Pacific Wood Fuels Company
Pacific Wood Power
Pay'n Save Drug Stores, Incorporated
Penstock Power Company
Presley ASW Finance Co., Inc.
Presley Financial Corporation
<PAGE>
Presley-Home Mac Finance Co., Inc.
Presley RAC Finance Co., Inc.
Sabagli N.V.
Southern California Gas Company
Southern California Gas Tower
Southern California Conservation Financing Company
Western Power, Inc.
8309 Tujunga Avenue Corp.
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statement Nos. 2-96782, 33-26357, 2-66833, 2-96781,
and 33-21908 of Pacific Enterprises on Forms S-8 and
Registration Statement Nos. 33-24830 and 33-44338 of Pacific
Enterprises on Forms S-3 of our reports dated January 31, 1994,
appearing in and incorporated by reference in this Annual Report
on Form 10-K of Pacific Enterprises for the year ended December
31, 1993.
DELOITTE & TOUCHE
Los Angeles, California
March 24, 1994
