PANHANDLE EASTERN PIPE LINE CO
10-Q, 1995-08-11
NATURAL GAS DISTRIBUTION
Previous: PAXAR CORP, 10-Q, 1995-08-11
Next: PENTAIR INC, 10-Q, 1995-08-11



===========================================================================

                    SECURITIES AND EXCHANGE COMMISSION
                    ----------------------------------

                         WASHINGTON, D.C.  20549
                         -----------------------

                            ------------------

                                FORM 10-Q

                            ------------------

                             QUARTERLY REPORT

                 Pursuant to Section 13 or 15(d) of the
                     Securities Exchange Act of 1934

                   For the Quarter Ended June 30, 1995
                       Commission File No. 1-2921

                        -----------------------
                                   
                  PANHANDLE EASTERN PIPE LINE COMPANY
        (Exact name of registrant as specified in its charter)
                                   
                        A Delaware Corporation
               (State of Incorporation or Organization)
                                   
                              44-0382470
                   (IRS Employer Identification No.)
                                   
   5400 Westheimer Court, P.O. Box 1642, Houston, Texas  77251-1642
     (Address of principal executive offices, including zip code)
                                   
                            (713) 627-5400
         (Registrant's telephone number, including area code)
                                   
                                   
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

                          Yes:  X      No:    

The Registrant meets the conditions set forth in General Instructions
(H)(1)(a) and (b) of the Form 10-Q and is therefore filing this Form 10-Q with
the reduced disclosure format.  Part I, Item 2 has been reduced and Part II,
Item 4 has been omitted in accordance with such Instruction H.  

The Registrant's parent, Panhandle Eastern Corporation (File No. 1-8157),
files reports and proxy materials pursuant to the Securities Exchange Act of
1934.  

Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date:

             Class                    Outstanding at July 31, 1995
    --------------------------         -----------------------------
    Common Stock, no par value                     1,000

==============================================================================
<PAGE>
                      PART I.  FINANCIAL INFORMATION

Item 1.                                      Financial Statements - Unaudited

           Panhandle Eastern Pipe Line Company and Subsidiaries
                     CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
                                                     Periods Ended June 30           
                                    Three Months              Six Months     
                                            ----------------         ----------------  
Millions                    1995    1994       1995    1994   
- - --------                   ------  ------     ------  ------  
<S>                                  <C>    <C>        <C>      <C>     
Operating Revenues
 Transportation and storage 
   of natural gas          $119.2  $123.0     $255.6  $269.1  
 Sales of natural gas         -      54.1        -     115.8  
 Other                        5.7     5.5       11.7    13.2  
                           ------  ------     ------  ------  
   Total (Note 2)           124.9   182.6      267.3   398.1  
                           ------  ------     ------  ------  

Costs and Expenses
 Natural gas purchased        -      54.1        -     115.8  
 Operating and maintenance   49.5    50.2       99.0    94.8  
 General and administrative            16.4   20.9       35.6     42.6  
 Depreciation and amortization         14.7   13.5       29.4     26.8  
 Miscellaneous taxes          7.2     7.0       14.9    14.3  
                           ------  ------     ------  ------  
   Total                     87.8   145.7      178.9   294.3  
                           ------  ------     ------  ------  

Operating Income             37.1    36.9       88.4   103.8  
                           ------  ------     ------  ------  
Other Income and Deductions
 Equity in earnings of 
   unconsolidated affiliates            1.2    1.4        5.1      2.8  
 Interest income - parent     0.1     9.9        0.3    17.5  
 Other income, net of deductions        0.6    1.0       (1.4)     0.8  
                           ------  ------     ------  ------  
   Total                      1.9    12.3        4.0    21.1  
                           ------  ------     ------  ------  
Gross Income                 39.0    49.2       92.4   124.9  

Interest Expense             12.2    12.6       24.2    25.3  
                           ------  ------     ------  ------  
Income Before Income Tax     26.8    36.6       68.2    99.6  

Income Tax                   10.5    14.0       26.8    38.7  
                           ------  ------     ------  ------  
NET INCOME                 $ 16.3  $ 22.6     $ 41.4  $ 60.9  
                           ======  ======     ======  ======  
</TABLE>


        See accompanying notes to consolidated financial statements<PAGE>
<PAGE>
Item 1.  Financial Statements - Unaudited (Continued)

           Panhandle Eastern Pipe Line Company and Subsidiaries
                        CONSOLIDATED BALANCE SHEET
                                  ASSETS
<TABLE>
<CAPTION>
                                                     June 30,   December 31, 
Millions                                 1995        1994     
- - --------                                            ---------   ------------ 
<S>                                                 <C>          <C>         
Current Assets
 Cash and cash equivalents             $    0.2   $     0.4 
 Note receivable - parent                   -           8.0 
 Accounts receivable, net                  50.8        38.9 
 Inventory and supplies                    61.8        65.7 
 Other (Note 2)                            70.8        63.6 
                                                  --------- --------- 

   Total                                  183.6       176.6 
                                                  --------- --------- 

Investments
 Advances and note receivable - parent                574.0     583.8 
 Other                                     58.4        45.1 
                                                  --------- --------- 

   Total                                  632.4       628.9 
                                                  --------- --------- 

Plant, Property and Equipment
 Original cost                                      2,751.2   2,742.8 
 Accumulated depreciation and amortization                   (1,801.6) (1,763.2)
                                                  --------- --------- 

   Net plant, property and equipment                            949.6     979.6 
                                                  --------- --------- 

Deferred Charges (Notes 2 and 4)                                168.5     198.5 
                                                  --------- --------- 


TOTAL ASSETS                                      $ 1,934.1 $ 1,983.6 
                                                  ========= ========= 
</TABLE>


       See accompanying notes to consolidated financial statements  <PAGE>
<PAGE>
Item 1.                    Financial Statements - Unaudited (Continued)

           Panhandle Eastern Pipe Line Company and Subsidiaries
                        CONSOLIDATED BALANCE SHEET
                   LIABILITIES AND STOCKHOLDER'S EQUITY 
<TABLE>
<CAPTION>
                                                     June 30,   December 31, 
Millions                                 1995        1994     
- - --------                                             --------   ------------ 
<S>                                                  <C>          <C>        
Current Liabilities
 Long-term debt due within one year                          $    4.5  $    -   
 Rate refund provisions (Note 2)                       56.1      51.2 
 Accounts payable                          21.1        29.8 
 Accrued income tax - parent                           32.0      69.0 
 Other accrued taxes                       25.4        19.2 
 Other (Note 4)                            58.5        59.8 
                                                   --------  -------- 

   Total                                  197.6       229.0 
                                                   --------  -------- 

Deferred Liabilities and Credits
 Deferred income tax                      171.1       191.9 
 Rate refund provisions (Note 2)                       71.7      81.8 
 Other (Note 4)                           121.0       139.2 
                                                   --------  -------- 

   Total                                  363.8       412.9 
                                                   --------  -------- 

Long-term Debt                            424.1       428.5 
                                                   --------  -------- 

Commitments and Contingent Liabilities 
 (Notes 2, 3, 4 and 5)

Common Stockholder's Equity
 Common stock, one thousand shares
   authorized, issued and outstanding,
   no par value                             1.0         1.0 
 Paid-in capital                          465.8       471.8 
 Retained earnings                        481.8       440.4 
                                                   --------  -------- 

   Total                                  948.6       913.2 
                                                   --------  -------- 

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY                   $1,934.1  $1,983.6 
                                                   ========  ======== 
</TABLE>


        See accompanying notes to consolidated financial statements<PAGE>
<PAGE>
Item 1.  Financial Statements - Unaudited (Continued)

            Panhandle Eastern Pipe Line Company and Subsidiaries
                   CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                    Six Months Ended  
                                                    June 30      
                                                    ----------------- 
Millions                                      1995      1994  
- - --------                                     ------    ------ 
<S>                                                    <C>       <C>    
Operating Activities
 Net income                                  $ 41.4    $ 60.9 
 Adjustments to reconcile net income to operating
   cash flows:
      Depreciation and amortization                      29.4      26.8 
      Deferred income tax expense (benefit)              11.1      (2.1)
      Interest income - parent                           (0.3)    (17.5)
      Other non-cash items in net income                            1.0 (8.8)
      Net change in operating assets
       and liabilities                        (84.2)     19.6 
                                             ------    ------ 
 Net Cash Flows Provided by (Used in) 
   Operating Activities                        (1.6)     78.9 
                                             ------    ------ 

Investing Activities
 Additions to plant, property and equipment             (18.1)    (34.4)
 Net decrease (increase) in advances/note
   receivable - parent                         18.1      (6.1)
 Property retirements and other                           1.0      11.7 
                                             ------    ------ 
 Net Cash Flows Provided by (Used in) 
   Investing Activities                         1.0     (28.8)
                                             ------    ------ 
Financing Activities
 Retirement of debt                              -      (50.0)
 Other                                          0.4      (0.1)
                                             ------    ------ 
 Net Cash Flows Provided by (Used in) 
   Financing Activities                         0.4     (50.1)
                                             ------    ------ 
Net Change in Cash
 Decrease in cash and cash equivalents                   (0.2)       -  
 Cash and cash equivalents, beginning of period           0.4       0.4 
                                             ------    ------ 
 Cash and Cash Equivalents, End of Period                        $  0.2 $  0.4 
                                             ======    ====== 
Supplemental Disclosures
 Cash paid for interest (net of amount capitalized)    $ 21.1    $ 21.2 
 Cash paid for income tax (including 
   intercompany amounts)                       70.0      82.1 
</TABLE>


        See accompanying notes to consolidated financial statements<PAGE>
<PAGE>
          PANHANDLE EASTERN PIPE LINE COMPANY AND SUBSIDIARIES
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


 1. References

    Panhandle Eastern Pipe Line Company (PEPL) and its subsidiaries (the
    Company), including Trunkline Gas Company (Trunkline), are involved in
    the interstate transportation and storage of natural gas.  PEPL is a
    wholly-owned subsidiary of Panhandle Eastern Corporation (PEC).  The
    interstate gas transmission operations of PEPL and Trunkline are subject
    to the rules, regulations and accounting procedures of the Federal
    Energy Regulatory Commission (FERC).  Certain amounts for the prior
    periods have been reclassified in the consolidated financial statements
    to conform to the current presentation.  

  2.     Natural Gas Revenues and Regulatory Matters

    When rate cases are pending final FERC approval, a portion of revenues
    collected by PEPL and Trunkline is subject to possible refunds.  The
    Company has established adequate reserves where required for such cases. 
    The following is a summary of pending rate cases before FERC and certain
    regulatory matters.  

    FERC Order 636 and Merchant Services

    During 1993, PEPL and Trunkline began providing restructured services
    pursuant to FERC Order 636.  This order, which is on appeal to the
    courts, requires pipeline service restructuring that "unbundles" sales,
    transportation and storage services.  Order 636 provides for the use of
    the straight fixed-variable (SFV) rate design, which assigns return on
    equity, related taxes and other fixed costs to the reservation component
    of rates.  In addition, Order 636 allows pipelines to recover eligible
    costs resulting from implementation of the order (transition costs).  

    At June 30, 1995, the Company had incurred approximately $60 million of
    transition costs, including amounts that have been recovered from
    customers.  Transition cost recoveries, which are subject to certain
    challenges that are pending before FERC, will occur over the next three
    years.  

    In the past, during the normal course of business, PEPL and Trunkline
    entered into certain gas purchase contracts containing take-or-pay
    provisions, which exposed the Company to financial risk.  As of June 30,
    1995, all such contracts had been terminated or assigned to third
    parties.  PEPL and Trunkline are currently collecting certain
    take-or-pay settlement costs through volumetric surcharges with interest
        through 1997.  <PAGE>
<PAGE>
    The U.S. Department of the Interior announced its intention to seek
    additional royalties from gas producers as a result of payments received
    by such producers in connection with past take-or-pay settlements, and
    buyouts and buydowns of gas sales contracts with natural gas pipelines. 
    PEPL and Trunkline, with respect to certain producer contract
    settlements, may be contractually required to reimburse or, in some
    instances, to indemnify producers against such royalty claims.  If PEPL
    and Trunkline ultimately have to reimburse or indemnify the producers,
    PEPL and Trunkline will file with FERC to recover a portion of these
    costs from pipeline customers.  The potential liability of the producers
    to the government and of the pipelines to the producers involves complex
    issues of law and fact which are likely to take a substantial period of
    time to resolve.

    The Company believes that Order 636 transition cost issues and
    take-or-pay settlement matters will not have a material adverse effect
    on future consolidated results of operations or financial position.  

    Jurisdictional Transportation and Sales Rates

    PEPL - On April 1, 1992 and November 1, 1992, PEPL placed into effect,
    subject to refund, general rate increases incorporating the SFV rate
    design.  Hearings in these rate proceedings were completed in the first
    half of 1994.  The FERC issued an order on May 25, 1995 on the earlier
    rate proceeding and PEPL has requested rehearing of that order.  The
    latter rate proceeding is pending FERC review of the initial
    Administrative Law Judge decision.
 
    Effective April 1, 1989, PEPL placed into effect, subject to refund,
    sales and transportation rates reflecting a restructuring of rates,
    including seasonal rate structures.  PEPL and others are appealing
    various FERC orders related to these rates.  On December 7, 1994, FERC
    approved a settlement agreement with a majority of the customers which
    resolves refund matters and terminates other actions for the period
    these rates were effective for the settling parties.  

    Trunkline - On September 1, 1994, Trunkline placed into effect, subject
    to refund, a general rate increase as a result of a filing made in
    accordance with terms of a rate case settlement in 1993.  An offer of
    settlement, supported by Trunkline's customers, was approved by FERC on
    July 6, 1995, subject to rehearing.

    Other - PEPL and Trunkline have, pursuant to FERC requirements,
    requested FERC approval to record the impact of adopting Statement of
    Financial Accounting Standards (Accounting Standard) No. 109,
    "Accounting for Income Taxes," including the recognition of a portion
    of the impact as an increase to stockholder's equity.  The FERC
    accounting branch has denied approval of these requests, pending future
    rate proceedings, and PEPL and Trunkline have filed for rehearing.  The
    Company believes the ultimate resolution of this matter will not have
    a material adverse effect on consolidated financial position.  
<PAGE>
<PAGE>
 3. Other Contingency

    Under the terms of a settlement related to a transportation agreement
    between PEPL and Northern Border Pipeline Company (Northern Border),
    PEPL guarantees payment to Northern Border under a transportation
    agreement by an affiliate of Pan-Alberta Gas Limited.  The
    transportation agreement requires estimated total payments of
    $184 million for the years 1995 through 2001.  In the opinion of
    management, the probability that PEPL will be required to perform under
    this guarantee is remote.  

 4. Environmental Matters

    The Company has identified environmental contamination at up to 53 sites
    on the PEPL and Trunkline systems and is undertaking remediation
    (cleanup) programs at these sites.  The contamination resulted from the
    past use of lubricants containing PCBs (polychlorinated biphenyls) and
    the prior use of wastewater collection facilities and other on-site
    disposal areas.  Soil and sediment testing, to date, has detected no
    significant off-site contamination.  The Company has communicated with
    the U.S. Environmental Protection Agency and appropriate state
    regulatory agencies on these matters.  The environmental cleanup
    programs are expected to continue until 2002.  

    At June 30, 1995 and December 31, 1994, the Company had undiscounted
    liabilities recorded of $71.1 million and $70 million, respectively,
    relating to PEPL and Trunkline PCB, wastewater and disposal area cleanup
    programs and had regulatory assets recorded of $81.4 million and
    $82.4 million, respectively, representing costs to be recovered from
    customers.    

    The federal and state cleanup programs are not expected to interrupt or
    diminish the Company's ability to deliver natural gas to customers.  The
    Company believes the ultimate resolution of matters relating to the
    cleanup programs will not have a material adverse effect on consolidated
    results of operations or financial position.  

 5. Litigation

    The Company is involved in various legal actions and claims arising in
    the normal course of business.  Based upon its current assessment of the
    facts and the law, management does not believe that the outcome of any
    such action or claim will have a material adverse effect upon the
    consolidated financial position of the Company.  However, these actions 
    and claims in the aggregate seek substantial damages against the Company
    and are subject to the uncertainties inherent in any litigation.  

 6. Fair Presentation

    The information as furnished reflects all normal recurring adjustments
    that are, in the opinion of management, necessary for a fair
    presentation of the Company's financial position as of June 30, 1995,
    results of operations for the three and six months ended June 30, 1995
    and 1994, and cash flows for the six months ended June 30, 1995 and
        1994.  <PAGE>
<PAGE>
Item 2.  Management's Discussion and Analysis of Financial Condition and
         Results of Operations

The following information is provided to facilitate increased understanding
of the 1995 and 1994 interim consolidated financial statements and
accompanying notes presented in Item 1.  Because all of the outstanding
capital stock of PEPL is owned by PEC, the following discussion has been
prepared in accordance with the reduced disclosure format permitted by Form
10-Q for issuers that are wholly-owned subsidiaries of reporting companies
under the Securities Exchange Act of 1934. 

OPERATING ENVIRONMENT 

All traditional pipeline sales services ceased during the fourth quarter of
1994 when Trunkline's unbundled sales contracts expired.  Pipeline earnings
have generally become more evenly distributed throughout the year as a result
of the SFV rate design required by Order 636.  PEPL and Trunkline continue to
offer selective discounting to maximize revenues from existing capacity.  

Order 636 Transition Costs - With implementation of Order 636 and the
elimination of pipeline merchant services, the Company's pipelines are
incurring certain costs for the transition.  At June 30, 1995, the Company had
incurred approximately $60 million of transition costs, including amounts that
have been recovered from customers.  Transition cost recoveries, which are
subject to certain challenges pending before FERC, will occur over the next
three years.  The Company believes that Order 636 transition cost issues will
not have a material adverse effect on future consolidated results of
operations or financial position. 

On September 1, 1994, Trunkline placed into effect, subject to refund, a
general rate increase as a result of a filing made in accordance with terms
of a rate case settlement in 1993.  An offer of settlement, supported by
Trunkline's customers, was approved by FERC on July 6, 1995, subject to
rehearing.  

For information concerning certain other regulatory proceedings, environmental
matters and other contingencies, see Notes 2, 3, 4 and 5 of the Notes to
Consolidated Financial Statements.  

RESULTS OF OPERATIONS

Consolidated net income for the six months ended June 30, 1995 was
$41.4 million compared with $60.9 million for the same period in 1994.  Total
natural gas volumes for the Company decreased 9% to 586 billion cubic feet,
comparing the first six months of 1995 with the same period of 1994,
attributable to warmer weather during the first six months of 1995.

Operating Income

Consolidated operating income for the Company decreased $15.4 million
comparing the first six months of 1995 with the same period in 1994, primarily
due to lower earnings from PEPL.  <PAGE>
<PAGE>
PEPL - PEPL's operating income decreased $1.5 million comparing the first six
months of 1995 with the same period in 1994, excluding $10.6 million of
nonrecurring expense reductions recorded in 1994 for the resolution of gas
supply matters.  Increased transportation revenue partially offset reduced
storage revenue.

Trunkline - Operating income for Trunkline decreased $3.3 million comparing
the first six months of 1995 with the same period in 1994.  Decreased
transportation revenue due to lower volumes attributable to warmer weather
during the first six months of 1995 was partially offset by lower operating
costs.  Sales revenue and associated gas purchased costs declined as a result
of the elimination of Trunkline's merchant function in late 1994.

Other Income and Deductions

The decrease of $17.1 million in net other income in the first six months of
1995 compared with the same period in 1994 reflects decreased interest income
on net advances receivable from PEC, as receivables for intercompany advances
no longer bear interest effective January 1, 1995.  

Interest Expense  

Interest expense in the first six months of 1995 decreased $1.1 million
compared with the same period in 1994 primarily as a result of lower average
debt balances outstanding.  

CAPITAL EXPENDITURES 

Capital expenditures totaled $18.1 million in the first six months of 1995,
compared with $34.4 million for the same period in 1994.  Capital expenditures
for 1995 are expected to approximate $75 million and are being funded by cash
from operations, debt issuances and/or available credit facilities.  Total
market expansion expenditures are expected to approximate 45% of the 1995
capital budget.  

ACCOUNTING STANDARDS

Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," issued in March 1995,
will be implemented by the Company in the first quarter of 1996.  This
standard addresses the accounting for the recognition and measurement of
impairment losses for long-lived assets, certain identifiable intangibles and
goodwill related to those assets to be held and used.  This standard also
addresses the accounting for long-lived assets and certain identifiable
intangibles to be disposed of.  

The Company does not expect Accounting Standard No. 121 to have a significant
effect on consolidated results of operations or financial position upon
adoption.  





<PAGE>
<PAGE>
                       PART II.  OTHER INFORMATION

Item 1.  Legal Proceedings

See Notes 2, 4 and 5 of the Notes to Consolidated Financial Statements in
Part I of this Report which are incorporated herein by reference.  See also
Item 3 of PEPL's Annual Report on Form 10-K for the year ended December 31,
1994. 

Item 4.  Submission of Matters to a Vote of Security Holders

On April 26, 1995, by way of action in writing by the sole common stockholder,
all directors as previously reported in PEPL's Annual Report on Form 10-K for
the year ended December 31, 1994 were re-elected for a term of one year. 

<PAGE>
<PAGE>
                               SIGNATURES


  Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned duly authorized officer and chief accounting officer.



                               PANHANDLE EASTERN PIPE LINE COMPANY 
                                          (Registrant)


                                      /s/ Sandra P. Meyer
                      
                             ---------------------------------------
                                 Sandra P. Meyer, Vice President



Date:  August 11, 1995

0075rpt.cpz


<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Panhandle Eastern Pipe Line Company Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<CIK> 0000076063
<NAME> PANHANDLE EASTERN PIPE LINE COMPANY
<MULTIPLIER> 1,000
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1995
<PERIOD-END>                               JUN-30-1995
<CASH>                                             200
<SECURITIES>                                         0
<RECEIVABLES>                                   50,800
<ALLOWANCES>                                         0
<INVENTORY>                                     61,800
<CURRENT-ASSETS>                               183,600
<PP&E>                                       2,751,200
<DEPRECIATION>                               1,801,600
<TOTAL-ASSETS>                               1,934,100
<CURRENT-LIABILITIES>                          197,600
<BONDS>                                        424,100
<COMMON>                                         1,000
                                0
                                          0
<OTHER-SE>                                     947,600
<TOTAL-LIABILITY-AND-EQUITY>                 1,934,100
<SALES>                                              0
<TOTAL-REVENUES>                               267,300
<CGS>                                                0
<TOTAL-COSTS>                                   99,000
<OTHER-EXPENSES>                                44,300
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              24,200
<INCOME-PRETAX>                                 68,200
<INCOME-TAX>                                    26,800
<INCOME-CONTINUING>                             41,400
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                    41,400
<EPS-PRIMARY>                                        0<F1>
<EPS-DILUTED>                                        0<F1>
<FN>
<F1>Not meaningful since Panhandle Eastern Pipe Line Company is a wholly-owned
subsidiary.
</FN>
        

</TABLE>


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission